New Delhi: Finance mnister, P Chidambaram, on Wednesday said that there was no proposal to tax foreign institutional investor (FII) inflows, setting at rest fears over such a possibility in the wake of the comments made by the Reserve Bank of India (RBI) governor, Y V Reddy.

"I am quite clear in my mind that there is no question of taxing FII inflows. There is no proposal to tax FII inflows," Chidambaram said reacting to Reddy''s comments in Mumbai on Wednesday.

The RBI Governor had expressed concern over volatility in domestic stock markets due to FIIs'' investments and said a view of price-based action like taxes could be considered.

The RBI governor''s comments led to fears that the government may tax FIIs in the ensuing Bbdget. The FIIs are understood to have been net sellers on Wednesday. The Sensex was down by 120 points on Wednesday to close at 6,102.74 points.

However, Chidambaram clarified: "he (the RBI Governor) intended the exact opposite. In fact, his view is that taxing FII inflows is not effective at all."

The fnance mnister said the idea of taxing FII inflows had come up from time-to-time. "I rejected it earlier. I reject it now," he added.