New Delhi: In a bid to boost investment and lift the sagging economy, new Finance Minister P Chidambaram on Monday 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 assesses concerned.

Roadmap for boosting confidence of investors

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."

Corrective measures for sagging economy

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 assesses concerned."

FM aims at wooing investors

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.

Economic growth slips to 6.5 pc

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.

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".

The government, it may be mentioned, has not been able to either decontrol or raise the price of diesel resulting in under-recoveries for the state-owned oil companies.

State-owned oil firms including Indian Oil, Hindustan Oil and Bharat Petroleum sell the fuel at a loss of about Rs 13.65 a litre while they lose Rs 231 on sale of every 14.2-kg LPG cylinder for domestic consumption. Besides, they are losing Rs 29.97 per litre on kerosene.

Govt to meet state owned oil firms' Rs 1,60,000 crore of losses

Without a price hike, a staggering Rs 1,60,000 crore of losses on these fuel sales would have to be met by the government this fiscal. Besides, high food and fertiliser bill is also putting pressure on government finances.

Admitting that inflation, particularly the rate of rise in food prices, is high, Chidambaram said, "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."

The headline or Wholesale Price Index-based inflation in June was 7.25 percent, while at the retail level it was at an alarming 10.02 percent.

The Minister said the efforts would be made to bring down inflation in the medium term. "Fiscal policy and monetary policy must point in the same direction and must move in tandem."

Govt to moderate inflation

The government, he added, would work with RBI to ensure that inflation is moderated in the medium term.

Pointing out that the key to restart the growth engine is to attract more investment, Chidambaram said, "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 difficulties in 'doing business in India', including fears about undue regulatory burden or regulatory over-reach."

Indian companies, especially public sector enterprises, which have large cash balances will be encouraged to restart investment, he said, adding "proposals pending with the Foreign Investment Promotion Board (FIPB) will be processed and decisions taken expeditiously    ".

On rupee depreciation, the Finance Minister said though volatility in the exchange rate has reduced in recent weeks, a reassurance on investment climate, continued inflow of remittances, and a rise in capital flows - both FDI and FII - would bring further stability to the exchange rate.

"We intend to fine-tune policies and procedures that will facilitate capital flows into India," he added.

Concerned with the sluggishness in both the mutual fund and insurance sector, Chidambaram said the government would announce, in the next few weeks, a number of decisions to attract more people to invest in these "well-designed instruments".

Perturbed with the subdued growth in manufacturing and export sectors, he said it was imperative to reverse this trend.

Supply side constraints to be removed

"Supply side constraints upon manufacturing and exports must be removed in double quick time. We intend to work with manufacturers and exporters and implement appropriate short term and medium term measures," he said.

In order to provide relief to the sectors under stress like petroleum, electricity and textiles, Chidamabaram said, "We intend to find practical solutions to the problems that impede higher production or output in the coal, mining, petroleum, power, road transport, railway and port sectors".

The Cabinet Committee on Economic Affairs would examine the issues affecting these sectors and take decisions that would lead to quantitative growth in these areas, he added.

The Finance Minister plans to converge welfare schemes line MGNERGA and others to meet the challenges of drought as, "it is the duty of the government to provide relief to the people living in drought affected districts, protect wage employment and save agricultural production to the extent possible."

Contingency plans, he said, are already in place to supply drinking water and fodder and to help farmers replant alternative crops.

"The country must seize the opportunity to build durable assets that would provide employment to the poor as well as help in drought-proofing agriculture in the affected districts," he said, as a drought-like situation stares several states.

Chidambaram seeks cooperation for passage of pending bills

Seeking cooperation from across the party-line for the smooth passage of the pending Bills in Parliament in the ensuing session, he said, "With the cooperation of political parties, civil society, farmers and workers, service providers, producers and consumers... we will return to the path of high growth, inclusive development, and economic and social justice for all."


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