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Chidambaram rejects industry plea for duty cuts
January, 10th 2007
Inflation worrying; India Inc told to maintain stable prices

Telling a tale
Contribution of manufacturing products to inflation rising
No one-to-one correlation between excise duty cuts and reduction in prices

Mr P. Chidambaram

The Finance Minister, Mr P. Chidambaram, on Tuesday virtually rejected industry's suggestion for a cut in excise duties and other taxes to maintain stable prices and thereby help curb rising inflation.Pointing to the rising trend in the contribution of manufacturing products to inflation in the recent weeks, Mr Chidambaram urged India Inc to address the issue of costs and keep prices stable rather than boost prices to make the most of "smelt opportunity for profits". He said the contribution of primary products and fuel to inflation has seen a declining trend in the recent weeks.

Speaking at the 79th Annual General Meeting of the Federation of Indian Chambers of Commerce and Industry (FICCI), Mr Chidambaram said that he was not sure whether reducing taxes would result in reduced prices, as there was no one-to-one correlation between excise duty cuts and reduction in prices.

"There is enough evidence to show that excise cuts made in the past had not really translated into reduced prices," he said.

Mr Chidambaram cautioned that "entrenched core inflation" would work to the disadvantage of industry. "Rising inflation was the only dark cloud of 2006. High inflation is troublesome.

Today, even 4 per cent inflation is unacceptable. Beware against entrenched core inflation.

To address the core inflation, we must bring down and moderate prices," he said.

The wholesale price index (WPI)-based inflation touched 5.48 per cent for the week ended December 23, which is close to the higher end of the 5-5.5 per cent inflation forecast of the Reserve Bank of India for the current fiscal.

Later, commenting on the rights of tillers of agricultural land, Mr Chidambaram said that there is a sacred tie between the tiller and the land and this tie should be respected.

"This tie can never be broken. Any attempt to snap the relationship between the tiller and the land was bound to generate opposition," he said, without directly referring to the recent land acquisition controversies for industrial use at Singur and Nandigram in West Bengal.

To a question on the higher interest rates on real estate and housing sectors curtailing supply of new housing units, Mr Chidambaram said that interest rates have gone up due to higher risk weights attached to the sector by the RBI. Mr Chidambaram said that the central bank took this step as credit to the housing sector grew 54 per cent and commercial real estate at over 100 per cent.

"If the credit moderates for these sectors, interest rates will come down, but for the moment they are where they are," he said.

He also rejected industry's suggestion to allow it to replace high-cost rupee debt with seemingly low-cost foreign debt. "I cannot allow this as it would increase external debt of the country," he said.

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