India pledges clarity in tax laws as it seeks growth

P Chidambaram Mr Chidambaram is trying to revive confidence in the India economy amid slowing growth

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India's new finance minister, Palaniappan Chidambaram, has pledged to clarify tax laws and take measures to boost investment in the Indian economy.

In its latest budget, the government had proposed laws which would allow retrospective taxation, a move that was widely criticised.

There are fears that the law may deter foreign investors from entering India and hurt the country's growth.

Mr Chidambaram said he had ordered a review of those proposals.

"Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors," the finance minister said late on Monday.

"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."

Policy easing?

Start Quote

We are conscious that current interest rates are high. High interest rates inhibit the investor and are a burden on every class of borrowers”

End Quote P Chidambaram Finance Minister, India

Mr Chidambaram, who has taken charge of the finance ministry amid a slowdown in the Indian economy, said the government will also take steps to boost domestic demand.

Asia's third-largest economy expanded at an annual rate of 5.3% in three months to March, the slowest pace of growth since 2003.

Last week, India's central bank, the Reserve Bank of India (RBI), lowered India's growth forecast for the current financial year to 6.5% from 7.5%.

The bank also resisted calls for cutting interest rates, leaving its key rate unchanged at 8%.

It cited rising consumer prices as the key reason behind its decision, saying that a cut in interest rates would "only aggravate inflationary impulses without necessarily stimulating growth".

Consumer prices in India grew by 7.25% in June from a year earlier, a much higher rate than many other emerging economies in the region.

However, Mr Chidambaram, who met with the RBI governor Duvvuri Subbarao earlier in the day, said the government would look to bring down the cost of borrowing in a bid to ease the burden on businesses and consumers.

"We are conscious that current interest rates are high," he said. "High interest rates inhibit the investor and are a burden on every class of borrowers."

"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," he added.

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