Within less than a week of making a re-entry as the nation’s finance minister, Palaniappan Chidambaram has made it known to all concerned that his mission is no less than to sweep away the old order presided over by Pranab Mukherjee, who was recently elected President of India.
The spirit of the 2012-13 Budget presented by Mr Mukherjee four months ago is in for substantial overhaul as Mr Chidambaram made clear in a press note on Monday that he was about to take “carefully calibrated risks in order to stimulate investment and ease the burden on consumers”.
In the normal course, the new finance minister could have left the announcement of far-reaching changes to the information officers of his ministry, who typically produce terse, soulless texts giving notice of changing policy to the public through outlets such as newspapers, radio and television and nowadays online media too. Not so Mr Chidambaram.
His press note announcing the booming changes bore his imprimatur, and it was nothing short of ideological in tone and tenor, and briskly lucid in gauge and style. The note gave the impression with cutting frankness that Mr Chidambaram’s predecessor belonged to the pre-reforms ancien regime.
Proceeding on the assumption that investment is “an act of faith”, the finance minister observed: “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.” Nobody can argue with this, and most of it is pretty standard textbook stuff. But putting it all down in black and white leaves the impression that the basics were ignored in the past and that he had come to set matters right.
Investors across the board — both foreign and domestic — should straightaway fall in love with the measures that have been proposed. Along with dealing with questions relating to retrospective taxation which had exercised many (like the Vodafone case), and General Anti-Avoidance Rules (GAAR), the minister seeks to cut interest rates to boost investor sentiment. It appears that the Reserve Bank, too, is on board as Mr Chidambaram conducted a meeting with the central bank governor before issuing his note. Unlike in the past, the finance ministry has heeded the RBI’s concerns that monetary policy had to be backed by fiscal tightening in dealing with inflation. Government expenditure is thus likely to be pruned. On the whole, the steps indicated are sensible, though some resistance may be expected in Parliament.