Initiatives from the New Indian Finance Minister are Promising for Investors

August 9, 2012 Posted by India Briefing Reading Time: 3 minutes

Aug. 9 – After taking over as finance minister of India on August 1, Mr. P Chidambaram has voiced a clear intention to execute positive changes in the country’s tax regime. Eager to draw investment back to India, he has stated that the most important duty in his mind is to regain the confidence of investors.

To this end, the minister has promised a steady, clear and fair tax regime, and is planning to take corrective measures wherever necessary. To resume the growth engine, Chidambaram’s core professed aim is to draw more investment, both from home investors and overseas 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,” Chidambaram said in a speech on Monday.

To this end, he has argued, India must develop clearer communication of policies between government and potential investors. The aim should be to remove the perceived difficulties in doing business in India, including fears about undue authoritarian burden or regulatory over-reach. Indian companies with large cash balances, particularly public sector enterprises, will be encouraged to restart investment.

Increased clarity in tax regulations, a steady tax regime, a responsive tax administration, a fair device for dispute resolution, and a self-governing judiciary are some of the main instruments Chidambaram plans to develop in order to regain investor confidence.

The minister has also directed an evaluation of tax provisions that have a retrospective effect in order to find fair and reasonable solutions to pending as well as likely disputes between the concerned tax departments and the assessed parties. This is a direct response to controversial decisions under former finance minister Pranab Mukherjee to institute retroactive tax on some transactions.

Beyond taxation and investor confidence, Chidambaram has promised to deal with India’s fiscal deficit and price instability.

The minister stated that a fiscal consolidation path will begin shortly, and that the burden of fiscal correction will be shared, fairly and equitably, by different classes of stakeholders across India.
The finance minister stated that price stability is a crucial factor of his overall plan for office. Within the agricultural sector, he has announced that stocks of food grain will be used to moderate prices and that, where necessary, India will improve the import of items in short supply. Non-food inflation is already declining. Chidambaram has said that the government is working with the Reserve Bank of India to ensure that inflation is moderated in the medium term.

In the immediate term, noting that the monsoon in the south west of India is below expectation, the new finance minister has stated that the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and other schemes will be used together to meet the challenge of drought in states where low rainfall causes difficult economic and social conditions.

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