"The...question is that supposing you have large farms and you have an income from those farms which say exceeds certain high levels of income, then you can think about taxing that high level of income," he told news agency Press Trust of India in an interview.
Mr Jalan, however, added that a very large proportion of the population has small farms and we should not do anything which can hurt them.
Mr Jalan, under whose watch India weathered the Asian currency crisis, said low inflation and high growth are the main achievements of the NDA government but it would need to do more to reduce corruption and reform the complex administrative system.
"Most important part of what has been achieved is reflected, for example, in high rate of growth in last three years and also low inflation," he said.
On India's banking system, the former RBI governor said, "So far as India's banking system is concerned, on the whole, India's banking system is strong in my view."
Asked why India was being denied a rating upgrade even as growth and fundamentals have improved, Mr Jalan said the country's rating must be upgraded by global rating agencies because of a number of measures taken by the Modi government.
Recently, Fitch cited weak fiscal position to keep India's sovereign rating unchanged at 'BBB-', the lowest investment grade with stable outlook assigned to the country more than a decade ago.
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