New Delhi (JNN & Agencies): Prime Minister Manmohan Singh on Friday mooted waiving mandi, octroi and local taxes in order to offset the impact of inflation which posed a serious threat to the growth momentum affecting the poor and vulnerable sections.

Addressing chief secretaries of states, Singh said that though the economy has been on a high growth path for the past few years, inflation posed a "serious threat to the growth momentum".

"There seems to be a strong case for waiving mandi taxes, octroi and local taxes, which impede the smooth movement of essential commodities," he told the top officers.

He said there was a need for a "paradigm shift" in the institutional arrangements, for improving the availability of various commodities to meet the high domestic demand.

He rued that inflation had dented India's image abroad.

"It dilutes, if not negates, our efforts at social inclusion. It dents our international image and it demeans us before our own people," Singh said. He added that the challenge needed to be faced "frontally, boldly and quickly".

With the PM himself expressing dissatisfaction on factors fueling inflation, there is hope afresh that the taxes may be waived in the upcoming Budget of Feb 28.

READ FULL TEXT OF PM'S SPEECH

Boost farm supply chains

Singh added that farm supply chains needed to be improve with organised retail chains, a statement that can be seen pushing for the entry of modern supermarkets despite strong political opposition for foreign-owned multibrand retail like Wal-Mart from within the Congress party.

Singh said a lasting solution to tackling high food inflation lay in improving farm productivity. The statement came in the background of government not paying much attention to increase spending on improving farm productivity and reform agriculture marketing.

However, his statement may underline a change in opinion within the government that for years has prioritised growth over inflation worries, despite criticism from some quarters that the government was doing too little, too late to rein in prices.

Inflation for December accelerated to above 8.40% on the back of high food inflation, which reached a year high of 18.3% in December last. This has prompted officials to say India may have to live with higher inflation.

Growth may be hampered

The government has been sure the economy would grow over 8.5% in the current fiscal that ends in March, buoyed by the near 9% growth in the first half of the fiscal year.
However, high food inflation and the risk of shooting fuel prices make it unlikely that the government projections on growth will materialise.

Analysts have said that the current bout of food inflation is driven by shortages of vegetables like onions and potatoes and there can be no overnight solution.

The Reserve Bank of India, which has raised rates seven times since March to tackle high headline inflation, has been left to deal with the knock on effects of high food inflation.

Union Finance Minister Pranab Mukherjee said on Thursday that the fundamentals of the Indian economy strong and strong GDP numbers, tax collections, investment and saving rates were atestimony to that. But he also said that controlling inflation could be a problem for the next few months, refusing to link it with the final GDP figure.

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