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Will review laws with retrospective effect

 
Finance Minister P Chidambaram, hinting at a possible cut in interest rates impacting investments in India, said on Monday that high interest rates inhibit investors and are a burden on every class of borrowers, be it goods manufacturers, home buyers or students seeking education loan.

Chidambaram said the government was conscious that the current interest rates were high and appropriate steps would be taken to ease them.

“Sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers,” he said in his first comments after assuming charge of the Finance Ministry last week. High interest rates have been discouraging fresh investments and industrial production for nearly two years now.

Analysts also believe that high interest rates have started adding to headline inflation defeating the purpose for which RBI has been following a tight monetary policy. A recent study by India Inc found that while core inflation has remained well below overall inflation, the capacity of manufacturers to absorb rising interest costs is fast reaching breaking point.

To perk up investment, Chidambaram said he would bring more clarity to tax laws and put in place a non-adversarial tax administration. "Since investment is an act of faith, we must remove apprehensions or distrust in the minds of investors," Chidambaram said.

He added that he would try to finetune policies to reassure investor confidence, in an apparent reference to General Anti-Avoidance Rules (GAAR), and retrospective changes in tax legislation introduced by his predecessor Pranab Mukherjee. GAAR, proposed in this year’s budget had triggered strong opposition from foreign investors following which, its implementation was postponed till April next year.

The Finance Minister promised that he would review tax laws with retrospective effect to find solutions to pending tax disputes.

Chidamabaram said that in the next few weeks, the government will announce a number of schemes encouraging investments in mutual funds and insurance sectors to dissuade people from investing in gold, the demand for which worsens the current account deficit.