Finance Minister P Chidambaram today made a strong pitch to foreign investors to invest in India and promised them to provide a conducive atmosphere with a stable tax regime, lower fiscal deficit and high economic growth. He went on to woo the investors by exuding confidence that India did not face the risk of a downgrade.
His assertions came a few days after the government deferred the General Anti-Avoidance Rules (GAAR) by two years, providing clarity of stable tax regime to investors and little over a month ahead of the Budget presentation.
Speaking at the Global Investor Meet in Hong Kong, the finance minister is learnt to have told an audience of over 200 people that tax rates would not be raised and that though the government policy would be biased towards the poor, the upcoming Budget would offer a lot to investors as well.
For the first time Chidambaram gave a deadline for Good & Services Tax (GST) legislation. Though the Constitution is yet to be amended for enabling rollout of GST, he is planning to introduce the GST legislation in the Monsoon Session of Parliament and get it passed by December 2013. He said all states are already on board and a report on the design of GST is expected to be launched on January 25.
Business Standard could not independently verify these comments attributed to the finance minister by some of the investors who attended the meet.
Chidambaram said the economy would grow by 6.5-7% in 2013-14 and the growth would further escalate to 8% in 2014-15. The Indian economy grew 5.4% in the first half of the current financial year against 7.3% in the corresponding period of 2011-12 and is headed for a decade low growth in 2012-13. The Finance Ministry expects it to be between 5.7-5.9% in the current financial year. In 2011-12, the economy expanded by a nine-year low 6.5% and any growth below this number would be a ten-year low.
He highlighted infrastructure building as the top priority of the government and said the Cabinet Committee on Investments, which will have its first meeting in January, would remove all the bottlenecks in the way of large infrastructure projects.
Besides addressing the immediate concerns of the investors through measures such as postponement of GAAR just a week before his foreign trip for the investors’ meet, the finance minister also tried to give a glimpse of medium to long-term roadmap. In the long-term, the government would aim at increasing revenues by simplifying tax processes and increasing tax base.
To contain the Centre's fiscal deficit to 5.3% of the GDP this year, it would primarily curtail expenditure. It is aiming at cutting fiscal deficit by 60 basis points every year, reducing it to 3% in 2016-17. The Centre's weak finances have put India on radar of Standard & Poor's and Fitch which have downgraded outlook on its sovereign ratings, already at the lowest grade in the investment category. Moody's Investors Service which has retained the outlook also finds the government's finances as the weakest part of its macro economic profile.
The finance minister admitted current account deficit, which ballooned to a record 5.4% of GDP in July-September 2012, would remain high in the next financial year too, but foreign capital flows would be sufficient to fill the gap.
Allaying fears on political logjam on many critical issues, he said most political parties were on board and there was a support of ‘invisible politics’ to implement reforms.
The Finance Minister also said the government is also planning to raise the ceiling for foreign investors in government bond holdings from $10 billion to $15 billion and in corporate bonds from $20 billion to $25 billion. The lock-in period of one year for infrastructure bonds might be removed.