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Rediff.com  » Business » New FM will take tough decisions, says Nobel Prize winner

New FM will take tough decisions, says Nobel Prize winner

Last updated on: August 30, 2012 10:51 IST

New FM will take tough decisions, says Nobel Prize winner

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Dilasha Seth

In a recent Facebook interaction, Andrew Michael Spence, who got the Nobel Prize in Economics in 2001 with Joseph Stiglitz and George Akerlof, said India had suffered self-inflicted wounds to lower investor confidence.

Here, he talks about how he was partially referring to GAAR and retrospective amendments to the I-T Act.

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Image: Andrew Michael Spence
Photographs: Courtesy, Wikimedia Commons

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You said in a discussion on Facebook that India' s low investor confidence was a 'self-inflicted' wound. Could you elaborate on that? Were you referring to GAAR and retrospective amendments to the Income Tax Act?

Yes in part. But it was only one of several factors. The GAAR (General Anti-Avoidance Rules) created unnecessary uncertainty.

People understand that tax loopholes have to be closed, but this approach to tax capital transactions ran counter to most international norms.

And, then, it wasn't clear when and how it would be implemented, creating uncertainty and a sense that the government wasn't serious about the investment climate.

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Photographs: Uttam Ghosh/Rediff.com
Tags: GAAR , India

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New FM will take tough decisions, says Nobel Prize winner

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Has the so-called inaction on the reforms front and allegations over various deals compounded the matter?

In addition, the scandals and lack of reform momentum also contributed. India has been very successful, but does not operate with a big cushion to fall back on. In this respect, India is unlike China, where the government has a huge balance sheet to deploy.

Of course, they can misuse it, too. The reform momentum and public investment are key to sustaining growth and investor confidence. Business and government leaders understand this.

Finally, the global economy is not supportive as well. Corruption issues are important and need to be dealt with, but not at the cost of having the government do nothing else.

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Photographs: Reuters
Tags: India , China

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What is your assessment of the Indian economy right now? The growth declined to a nine-year low of 6.5 per cent in 2011-12. The government is optimistic the economy will grow more than 6.5 per cent . What is your estimate?

My view is that global headwinds and a pause in reform momentum will cause growth to be a bit disappointing this year. It is not entirely within India's control.  If things go very badly in Europe and the US or even China, growth could dip below 6.5 per cent. But I don't think that is the most likely outcome.

I would expect a somewhat better global picture to emerge and a restoration of resolve and reform in India.

The new finance minister (P Chidambaram) will take tough decisions and get things moving on that front. One won't always agree with him, but inaction is not going to be the problem.


Photographs: Faisal Mahmood/Reuters

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