New Delhi: Finance Minister P Chidambaram has said that government cannot not continue to reduce taxes on various items to contain inflation but there was a need for moderating demand of affluent sections to curb rising prices.
“The fiscal situation is under pressure, obviously you have to moderate demand of the affluent sections.. that is something which we have to consider in due course of time,” Chidambaramn said.
“Fiscal steps like cutting taxes etc. help to a point, but you cannot cut taxes indefinitely, because after a point, there is nothing to cut,” he noted.
This year, the government has so far abolished or reduced duties on various food items, cement,cotton, oil and other commodities to contain inflation that is expected to result in revenue losses of about Rs27,000 crore.
Referring to 13-year high inflation that touched 11.89% for the week ended 28 June, he said at the moment the government was relying on monetary steps to moderate demand.
“The best instrument to reduce aggregate demand is monetary policy. That is why the RBI, the monetary authority, is the first line of defence,” he said.
On fall in GDP growth prospects in 2008-09, he noted had there been no turbulence in the international market, it could have been 9%. However, he added the growth during the current fiscal would above 8%.