One of the most controversial tax proposals in recent times has finally been postponed. On Monday, finance minister Pranab Mukherjee told Parliament his government would delay the rollout of the general anti-avoidance rules or GAAR. Mukherjee said the delay would help both taxpayers and authorities address issues arising out of the proposal. Crucially, he added that the burden of proving tax evasion would now lie with tax authorities rather than investors. GAAR had been announced a part of the Union budget for this year. But its provisions scared foreign institutional investors.
Meanwhile some companies that have invested directly in India have good reason to be scared. On Tuesday, Pranab Mukherjee said the government could still tax overseas deals that make capital gains by selling Indian assets. On cue, tax authorities announced the next day that it would make a fresh claim on Vodafone. That will include Rs7,900 crore in basic tax, and also a penalty and interest of Rs4,300 crore. The government plans to send Vodafone a notice once the Finance Bill 2012 gets passed.
Pranab Mukherjee . PTI
And switching to other developments, the Reserve Bank is pulling all stops in its efforts to defend India’s battered currency. On Thursday it laid out new measures that could help shore up the rupee. Most significantly, it told exporters they would have to sell half of their foreign currency holdings. The move is expected to infuse at least $2.5 billion into the market. RBI also allowed banks to take intraday currency trading positions up to five times their overnight limit. Until Thursday’s announcement, banks were not allowed to take intra-day positions greater than their overnight limit. RBI is hoping the move will dampen rupee volatility. But the currency continues to get battered. The rupee ended Friday at 53.64 to the dollar.
And while the rupee may be falling, it may not be enough to boost exports. Indeed, on Thursday, commerce secretary Rahul Khullar warned that export growth may plunge to 10 to 15% this fiscal, from the previous 21% growth. He also released trade figures for April. According to them, India’s exports for the month went up just 3.2% to $24.5 billion. Imports meanwhile fell 3.8% to $37.9 billion. That meant a trade deficit of $13.4 billion for the month. The one bit of silver lining from the gloomy trade figures is that with imports also expected to fall, the country’s trade deficit could narrow.
The disappointments for India’s economy don’t end there. The country’s industrial output has also plunged. The Index of Industrial Production for March actually contracted 3.5% In February it grew 4.1%. The latest decline in the volatile IIP index came largely because of capital goods. They dropped 21.3% in March.
And moving to corporate news, India’s biggest company has effectively downgraded the value of one of its most important businesses. On Monday, Reliance Industries slashed the value of its proven gas reserves. It cut its estimate by 6.63% of proven reserves at the beginning of the last fiscal. That amounts to a reduction of 0.43 trillion cubic feet.
While RIL hasn’t mentioned any particular fields that have been affected, its management has indicated that this is largely because of falling production at the once-lucrative KG D6 gas block. RIL’s estimate comes even as it repeatedly clashed with the government over the costs of developing fields and the selling price for gas.