| Finance minister P. Chidambaram in New Delhi on Tuesday. Picture by Ramakant Kushwaha
New Delhi, Nov. 7: There’s some encouraging news for honest taxpayers. Finance minister P. Chidambaram has promised further moderation in tax rates provided the compliance level goes up.
The minister thinks it is because of moderate and stable rates that more people are now encouraged to pay their taxes. “There is scope for further moderation. However, this will depend on greater tax compliance,” Chidambaram said at the economic editors’ conference here today.
With the North Block ready to chalk out the broad contours of the next budget, Chidambaram stressed the need for deepening the reforms process. He said broadening the base of reforms had enabled the country to become a major economic power and it needs to be deepened.
“We have miles to go before we rest. We need more reforms to sustain growth at 8-10 per cent for at least two decades.”
Admitting that inflation was an area of concern, Chidambaram said the increase in the rate of inflation had been mainly due to rise in prices of 30 essential commodities such as wheat, flour, pulses, sugar, potatoes and milk.
The minister felt that the management and distribution of essential commodities through the public distribution system can have a salutary effect on prices. He said the Centre, in co-operation with state governments, would work on this front.
The government has achieved the procurement targets for wheat and paddy during the current kharif season, he added and hoped that the same would be replicated in the forthcoming rabi season.
Taking a contra view to what bankers feel, Chidambaram said there was no immediate need to increase interest rates while rebalancing banks’ portfolios to deal with the mismatch in credit-deposit ratio.
During a meeting with the bankers yesterday, Chidambaram exhorted them to jack up deposits giving rise to speculations that banks may winch up rates to tap savings of households.
“On interest outlook, liquidity is quite comfortable. Because of rebalancing of portfolio I don’t see immediate rise in interest rates,” he said.
“I have asked banks to rebalance portfolio and mobilise more deposits,” he said, adding, “if banks are able to do both, I don't think there is any need to increase interest rates.”
The government sees infrastructure as a major hurdle to deepening reforms.
While speaking at the economic editors’ conference, Planning Commission deputy chairman Montek Singh Ahluwalia said the Eleventh Plan (2007-12) would seek to raise the level of investment in infrastructure to 8 per cent of GDP from 4.7 per cent at present.
According to Ahluwalia, this will require an additional mobilisation of $110 billion to increase the investment in infrastructure to $310 billion.