New Delhi, Aug 6: In a bid to boost investment and lift the sagging economy, new Finance Minister P Chidambaram today promised fine-tuning of policies, corrective measures to put in place a stable and non-adversarial tax regime and a possible cut in interest rates.
He has also directed a review of tax provisions that have a retrospective effect in order to find a fair and reasonable solutions to pending as well as likely disputes between the tax department and assessees concerned.
Unveiling a broad roadmap to regain the confidence of investors, the Minister, who took charge of finance portfolio last week, made a detailed statement in which he said that government will work with the RBI to moderate inflation in the medium term.
Noting that current interest rates are high, he said, “sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers. We will take appropriate steps in this regard.”
Making it clear that his uppermost duty was to regain the confidence of all stake holders, he said, “obviously, wherever necessary, our policies have to be modified or fine-tuned to meet the expectations of different stakeholders.”
In an apparent reference to the recent controversies over retrospective amendment to the Income Tax Act and GAAR (General Anti Avoidance Rules) provisions in the Budget of his predecessor Pranab Mukherjee, Chidambaram said, “clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution and an independent judiciary will provide great assurance to investors. We will take corrective measures wherever necessary.”
Referring to the appointment of two committees to examine the GAAR legal provisions and guidelines and the other to review taxation of IT sector and Development Centres, Chidambaram said, “I have also directed a review of tax provisions that have retrospective effect in order to find fair and reasonable solution to pending as well as likely dispute between the tax department and the assessees concerned.”
The statement of new Finance Minister on the tax regime and the problems of investors appear to be aimed at assuaging global and domestic investors who have been critical of the 2012-13 budgetary measures that had evoked sharp all round criticism after Vodafone and other cases were sought to be reopened.
With these and other measures, Chidambaram hoped to take in the short term the intention to raise the level of investment to 30 per cent of the GDP, that was achieved in 2007-08.
“It is true that the economy is challenged by a number of factors, but it is also true that with sound policies, good governance and effective implementation we would be able to overcome these challenges,” the Minister stressed.
The economic growth during 2011-12 slipped to nine-year low of 6.5 per cent and the expectations of the current fiscal are not promising in view of deficient monsoon, high inflation and global slowdown.
Chidambaram said the Government will work with RBI to control both inflation and interest rates to stimulate investment and ease burden on consumers.
Underscoring price stability, more importantly for the poor, he said the government will use its foodgrains stocks to moderate prices and enhance imports of essential commodities.
Chidambaram said fiscal and monetary policies must point to the same direction to moderate inflation. “The government will work with the Reserve Bank of India to ensure that inflation is moderated in the medium term.
“(Also) high interest rates inhibit the investors and are a burden on every class of borrowers, be it a manufacturer or a purchaser of home or two-wheeler or a student who takes an education loan”.
The Finance Minister who met RBI Governor D Subbarao this morning, said “sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers. We will take appropriate steps in this regard”.
Subbarao has been maintaining that the inflation needs to remain the top priority for the RBI. The central bank did not reduce the benchmark interest rates in its first quarter credit policy review despite pressure from the industry. The wholesale inflation in June was 7.25 per cent, while at the retail level it was 10.02 per cent.
Industrial production recorded a dismal growth of 2.4 per cent in May and the overall economic growth slowed to nine-year low of 6.5 per cent in 2011-12.
In the backdrop of monsoon deficiency, Planning Commission Deputy Chairman Montek Singh Ahluwalia has lowered the economic growth projections to about six per cent in 2012-13.
Following are the highlights of today's statement by P Chidambaram:
•Govt to modify tax policies to regain investor confidence
•Review tax provisions that have retrospective effect
•Remove supply-side constraints to achieve price stability
•Use existing food stocks to moderate prices; increase imports to deal with shortages
•Will work with RBI to moderate inflation in medium-term
•Take action to ease interest burden on consumers
•Steps in few weeks to attract investments in MFs,insurance
•Review taxation of IT sector and Development Centres
•Intends to raise the level of investment to 38 pc of GDP
•To fine tune policies, procedures to facilitate capital flows
•To work with manufacturers, exporters and implement appropriate measures
•Will seeks expert advice on fiscal consolidation, unveil roadmap soon
•Seeks cooperation of political parties to pass Bills
