Finance Minister P. Chidambaram has hinted at a possible interest rate cut and re-look at some controversial tax measures. These include the General Anti Avoidance Rules. He also sought to allay investor fears in his first official statement in his new capacity.
At the same time, he unveiled a roadmap to revive stalled growth and restore investor confidence.
“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.
He stressed that “high interest rates inhibit the investor and are a burden on every class of borrowers, be it a manufacturer of goods or a purchaser of a home or a two-wheeler or a student who takes an education loan.”
His remarks, coming on the back of his meeting with Reserve Bank of India Governor D Subbarao on Monday, spurred talks of an impending rate cut and caused bond yields to ease.
Clarity on taxation
In a bid to allay fears of foreign investors, the Finance Minister 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.” This was a clear indication that the Government was preparing the ground to dilute the controversial GAAR and the retrospective amendment to the Income-Tax Act. The Government has already appointed a committee to work on the guidelines for both. Promising measures to boost investments in mutual funds and insurance within a few weeks, Chidambaram said the Government intends to raise the level of investment to 38 per cent of GDP.
Fiscal Consolidation
In order to pacify rating agencies, Chidambaram said he will unveil measures for fiscal consolidation shortly. “The burden of fiscal correction must be shared, fairly and equitably, by different classes of stakeholders. The poor must be protected and others must bear their fair share of the burden. Obviously, adjustments must be made both on the revenue side and on the expenditure side,” he added.
Inflation
The Finance Minister was confident inflation would moderate in the medium term. He said, “Fiscal policy and monetary policy must point to the same direction and must move in tandem. Government will work with the Reserve Bank of India to ensure that inflation is moderated in the medium term.”