"My successor was misquoted by a TV journalist. You cannot tax one kind of flows while exempting others," Jalan said in response to a question during his lecuture on 'The Future of India: Some Thoughts in Politics, Economics and Governance', in New Delhi.
Jalan, who is now a Rajya Sabha MP, said tax on FII flows might change the pattern of their short-term and long-term investments, but it does not work in general.
The country cannot have tax on one kind of flows when it exempts others like remittances, he added.
Reddy was reported as saying on January 12 that certain measures, including ceilings and taxes, could be considered for enhancing quality and quantity of FII flows.
Price-based measures such as taxes could be examined though their effectiveness is arguable, he was quoted as saying by a section of the media. But later in the day, Finance Minister P Chidambaram had clarified, "he (RBI Governor) intended to say exactly the opposite. In fact, his view is that taxing FII inflows is not effective at all."
The Finance Minister had said the idea of taxing FII inflows had come up from time to time.
"I rejected it earlier. I reject it now", he had added. Reddy's reported statement had prompted large-scale selling by FIIs that day, pulling down the sensex by 120 points to 6,103 points.
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