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MUMBAI: India has decided to defer controversial rules to fight tax evasion for two years, the Finance Minister P Chidambaram said yesterday, which should help ease foreign investor concerns.
The General Anti-Avoidance Rules, introduced in last year’s budget to curb tax evasion through tax havens, will now be introduced from April 1, 2016 on the recommendation of a government panel. The rules, which had been criticised by several experts as a money-grabbing exercise by a government battling to curb a widening fiscal deficit, were originally due to come into force in 2014.
Shares extended gains after the news, up 0.94 percent, or 185.73 points, to 19,849.37, their highest level in about two years.
The tax rules will apply to only those foreign investors who seek to take advantage of the double taxation avoidance treaties India has with different countries, Chidambaram told reporters.
“No investor should have any apprehension about their investments in India,” he said.
“The modifications that we have done are fair, non-discriminatory, just and strike a balance between interest of revenue and interest of investors,” he said.
One of India’s top businessmen, software entrepreneur N R Narayana Murthy, slammed the government over the earlier proposals, which he said soured foreign sentiment and were “like taking a pistol and shooting ourselves”.
Foreign institutional investors, who started to invest in Indian equities and debt markets after liberalisation in the 1990s, were net investors in Indian stocks worth $24.37bn in 2012.
Meanwhile, nation’s general inflation moderated to 7.18 percent in December, the lowest since December 2009, giving hope to the industry and banking sector of a policy rate cut by the central bank.
The inflation moderated due to softening in power and fuel prices, government data showed yesterday. The rate for November, 2012, was 7.24 percent.
The rate in increase of prices was recorded at 7.74 percent in the corresponding month of the previous year.
Moderation in inflation would give some relief to the policymakers, who have been struggling to balance the need for controlling the inflationary pressure and stimulate economic growth.
Inflation has remained at an elevated level despite a tight monetary policy adopted by the Reserve Bank of India (RBI).
There will be pressure on the RBI for rate cuts in its quarterly review of monetary policy for 2012-13 on January 29.
The latest inflation data also had a positive impact at the Bombay Stock Exchange (BSE).
The 30-scrip sensitive Sensex of the BSE increased by more than half a percent in the late afternoon trade.
Sectoral indices such as information technology (IT) was up 146.14 points, followed by bank index, which was higher by 120.78 points and consumer durables index which gained by 103.49 points. The RBI has kept key lending and borrowing rates unchanged, saying inflation remained sticky and might rise further.
Another barring on the RBI, apart from a slowdown in inflation, will be the November’s industrial production data, which had logged a negative 0.1 percent growth year-on-year in November 2012. However, the increase in wholesale-based food price inflation to 11.16 percent in December from 0.79 percent recorded in the corresponding month of 2011, will remain a major concern for the central bank.