Capitulating to unrelenting pressure from stakeholders affected by his stringent budget proposals, Finance Minister Pranab Mukherjee has rolled back some while delaying implementation of others, notably the anti-tax evasion provisions popularly called GAAR (General Anti-avoidance Rules). The pressure brought to bear by angry investors and traders, depressed stock markets and a rupee in free fall was probably too much to bear. Mr. Mukherjee must also have been conscious of the importance of foreign portfolio flows to bridge the widening current account deficit, estimated to be around 4 per cent for 2011-12, while deciding to defer the implementation of GAAR until the next financial year. These were a red rag to foreign investors, some of whom held back fresh investments in the period since the budget. The Finance Minister has also done the right thing in shifting the onus of proving tax avoidance to Revenue, which is an amendment of the budget proposal, and in allowing an independent member to be appointed on the GAAR panel. The facility of seeking advance ruling on GAAR provisions is also a welcome step as investors can plan their moves better. It is not surprising, then, that the stock market gave the thumbs up to Mr. Mukherjee's rollbacks with the BSE Sensex, which was down by over 300 points until the Finance Minister's speech in Parliament in the afternoon, soaring by 400 points from the day's low.

The jewellers' lobby also seems to have won with Mr. Mukherjee doing away with the 1 per cent excise duty that he imposed on non-branded jewellery. It is a double bonanza for the trade because branded jewellery will also be exempt from the levy now. More than the revenue that could have been generated from it, the duty was important because the jewellery business has traditionally been a magnet for unaccounted money and this levy might have brought such funds to account. From this perspective alone the rollback is retrograde, aside from sending the wrong signal that this government is susceptible to pressure. One proposal on which the Finance Minister has not succumbed, though, is the retrospective clarification that will bring the Vodafone deal to tax. The government has justified its move saying that such a large deal cannot be allowed to go tax-free and has to be held to tax in one jurisdiction or another. The case might well return to the Supreme Court but the government has held firm, which is notable indeed. It is also not clear what impact the rollbacks will have on the revenue side of the budget arithmetic. If in the end, they lead to better sentiment and consequently higher GDP growth, their purpose might have been served.

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