RBI's rate hike will curb inflation: Pranab

Finance Minister Pranab Mukherjee on Tuesday said the Reserve Bank's decision to hike short-term borrowing and lending rates will help contain inflation and was in line with the government's policy.

Welcoming the RBI decision to increase the repo and reverse repo rates (short-term borrowing and lending rates) by 25 basis points each, Mukherjee said it was aimed at giving "a strong signal to tackle inflationary pressures".

"RBI has taken a decision very correctly to increase the repo rate and reverse repo rate," he added. The Reserve Bank of India (RBI) also revised inflation target to 7 per cent by March-end, from 5.5 per cent projected previously.

The central bank retained the economic growth forecast at 8.5 per cent for the current fiscal with potential for an upward bias. The RBI measures also include extending additional liquidity support facility till April 8, 2011.

"Therefore the RBI policy announcement is in conformity with the thinking and policy of the government," the finance minister said.

Mukherjee said the government has formulated a five pronged strategy comprising joining the global crusade against 'black money'; creating an appropriate legislative framework; setting up institutions for dealing with illicit funds; developing systems for implementation; and imparting skills to the manpower for effective action.

The Finance Minister said there were no reliable estimates of black money both inside and outside the country. The interim recommendations of BJP Task Force 2009 have estimated the amount of black money to be between $500 billion to $1,400 billion, he said. A recent study by Global Financial Integrity has estimated the present value of illicit money outflow to be $462 billion, he said.

"All these estimates are based on various unverifiable assumptions and approximations. government has been seized of the matter and has constituted a multidisciplinary committee to get studies conducted to estimate the quantum of illicit fund generated by Indian citizens," Mukherjee said.

On whether the government would come out with an amnesty scheme to bring back unaccounted money abroad, he said a group has been constituted to look into such possibility.

He said India has also initiated process of negotiation with 65 countries to broaden the scope of article concerning Exchange of Information to specifically allow for exchange of banking information and information regarding taxpayers not covered by DTAA.

"Thirteen new DTAAs have also been finalised where the Exchange of Information Article is in line with the international standards," the minister said.

He said the government was strengthening the administrative machinery by setting up eight more income tax overseas units.

Two such units are operational in Singapore and Mauritius, Mukherjee said. The government is also setting up an Exchange of Information (EoI) Cell, which will help in effective exchange of information to curb tax evasion, he said.

"We have detected undisclosed income of about Rs 15,000 crore (Rs 150 billion) in last 18 months, due to focused search operations by the Income Tax Department," he said adding that during the same period, Directorate of International Taxation has collected taxes of Rs 34,601 crore (Rs 346.01 billion).

"The Directorate of Transfer Pricing has detected mispricing of Rs 33,784 crore (Rs 337.84 billion), which has prevented shifting of an equivalent amount of money outside India," he said.

Information regarding details of payments received by Indian citizens in several countries has started also coming from treaty partners. This information is in different stages of processing and investigation, Mukherjee said.