Aimed at battling economic slowdown, Finance Minister P. Chidambaram, on Monday, said the government was ready with an action plan to “regain the confidence of all stakeholders”. His recipe for reversing last two years’ moderate growth includes tackling high inflation, possible cut in interest rates, a progressive tax regime and financial consolidation through modification or fine-tuning of policies.
Addressing his maiden press conference, after taking over as Finance Minister in the UPA-II regime last week, Mr. Chidambaram said the Centre would work closely with the Reserve Bank of India to moderate inflation in the medium-term. “Price stability is an important objective. There has been pressure on prices, and inflation, especially food inflation, is high. The causes are well known…some are beyond our control, such as prices of crude oil and imported commodities, but some others can be addressed by determined action. We will take steps to remove the constraints on the supply side,” he said.
The new Finance Minister pointed out that the government was conscious about high interest rates, but noted that “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.”
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Allaying fears about proposed strong tax laws, Mr. Chidambaram 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.”
Stating that two committees have already been appointed to examine GAAR (General Anti Avoidance Rules) and taxation of the IT sector and Development Centres, he said: “I have also directed a review of tax provisions that have retrospective effect in order to find fair and reasonable solution to pending as well as likely dispute between the tax department and the assessees concerned.” All these moves are aimed at instilling confidence in international investors.
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Mr. Chidambaram further said that the key to restart the growth engine was to attract more investment, from domestic and foreign investors. “The aim will be to remove the perceived difficulties in doing business in India, including fears about undue regulatory burden or regulatory over-reach,” he added.
Expressing concern over monsoon being below expectations that has led to drought-like conditions in several states, Mr. Chidambaram said: “MGNREGA and other schemes will be converged to meet the challenge of drought. Contingency plans are in place to supply drinking water and fodder and to help farmers replant alternative crops.”
Fiscal consolidation
Noting that the government was formulating the path of fiscal consolidation, he said: “The work will be completed in a few weeks…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.”
Referring to challenges being faced by the global economy, Mr. Chidambaram said the Indian economy was stronger and better prepared to face the challenges. “Moderate growth in two out of eight years should not dent our confidence,” he stressed. He also sought cooperation from all political parties in getting crucial bills passed in Parliament.
Pointing towards low or negative growth in manufacturing and exports sectors, the two key drivers of the economy, Mr. Chidambaram said supply-side constraints in manufacturing and exports must be removed in double quick time.
“We intend to work with manufacturers and exporters and implement appropriate short-term and medium-term measures,” Mr. Chidambaram added.
He also noted that some sectors such as petroleum, electricity and textiles were under stress, and said the government would find practical solutions to the problems that impeded higher production or output in the coal, mining, petroleum, power, road transport, railway and port sectors.