New Delhi: New Finance Minister P Chidambaram on Monday unveiled his roadmap to boost investment and economy by fine-tuning policies to put in place a stable and non- adversarial tax regime, a possible cut in interest rates and measures to attract domestic savings and foreign capital.
In an apparent break from the recent past, he has directed a review of tax provisions that have a retrospective effect in order to find a fair and reasonable solution to pending as well as likely disputes between the tax department and assessees concerned.
Making a detailed statement, Chidambaram, who took charge of the finance portfolio last week, also made an obvious reference to 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.
"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," he said.
The Minister 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."
Chidambaram referred to the appointment of two committees to examine the GAAR legal provisions and taxation of IT sector and Development Centres when Prime Minister Manmohan Singh was handling the portfolio after Mukherjee's exit.
"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," he said.
He said the key to restart the growth engine is to attract more investment, both from domestic and foreign investors.
"Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors. We will improve communication of our policies to potential investors.
"The aim will be to remove the perceived difficulty in 'doing business in India', including fears about undue regulatory burden or regulatory over-reach," Chidambaram said.
The minister's statement 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 raise the level of investment to 38 (rpt) 38 percent 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 percent and the expectations of the current fiscal are not promising in view of deficient monsoon, high inflation and global slowdown.
On fiscal consolidation, Chidambaram said that he has asked noted experts Vijay Kelkar, Indira Rajaraman and Sanjiv Misra to assist, "the Government in formulating the path of fiscal consolidation and we expect that the work will be completed in a few weeks."
The Government would soon unveil the path, he said, adding, "...The burden of fiscal correction must be shared, fairly and equitable, by different classes of stakeholders... adjustments must be made both on the revenue side and the expenditure side".
Taking note of the four percent dip in savings from 36 percent of GDP in 2007-08 to 32 percent now, he said, gold is not a productive asset as demand for it worsens the Current Account Deficit (CAD).
"Both the mutual fund industry and the insurance sector have turned sluggish. In the next few weeks, we will announce a number of decisions to attract more people to invest in mutual funds, insurance policies and other well-designed instruments", he said.
Price stability, Chidambaram said, is an important objective and the pressure on food inflation is high.
While some causes like crude oil and imported commodities are beyond the government control, some others can be addressed by determined action.
"We will take steps to remove constraints on supply side. We will also use our stocks of foodgrains to moderate prices. Where necessary, we will enhance the import of items in short supply", he said.
The Finance Minister said that non-food inflation was already declining and expressed confidence that inflation can be moderated in the medium term.
Fiscal policies and monetary policy must point to the same direction and move in tandem, he said in the statement which was issued shortly after he met RBI Governor D Subbarao.
"Government will work with the RBI to ensure that inflation is moderated in the medium term," he added.
Chidambaram said the government was conscious that the current interest rates were high and inhibit the investors while being a burden on every class of borrowers.
"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," he said.
On the exchange rate volatility, Chidambaram said a reassurance on the investment climate, continued inflow of remittances, and a rise in capital inflows -- FDI and FII -- will bring further stability to the rate.
"We intend to fine tune policies and procedures that will facilitate capital flows to India," he added.