Finance Minister P Chidambaram on Thursday favoured the removal of a sub-ceiling for foreign institutional investment within the overall foreign investment cap. He also said the government intended to comprehensively amend insurance laws, including raising the foreign investment cap from 26 per cent to 49 per cent.
In an interview to Business Standard, Chidambaram said the tax re-jig on petroleum products was revenue-neutral and should not result in an additional burden on oil companies.
"Assuming the quantity and international prices as constant, since I am taking in the same revenue as I took in under the previous regime, this is revenue-neutral and should not have any impact on prices," he said.
The minister said he would wait for the results of the cash transaction tax to emerge before introducing other measures to unearth black money. He, however, made it clear that he would not withdraw the tax without putting in place an alternative scheme to track money laundering.
Describing his Budget as a watershed, the finance minister said utmost priority would be given to reforms of the tax department to make it more taxpayer-friendly and more efficient. The reforms are also aimed at increasing tax compliance because "the people must realise that taxes are the price they pay for a civilised society", he said.
The finance ministry and the Planning Commission will establish a mechanism to measure development outcomes. Strengthening delivery mechanisms will be an important part of this exercise.
When asked what he had planned for corporate India, Chidambaram said: "Corporate India is now largely free to do what it wants. Corporate India has very few demands these days. Corporate India simply wants to be left alone. What is crying for attention is rural India."
On the issue of the removal of sub-limits for FII holding, the minister said the government would adopt a sector-specific policy and rewrite the rules at the time of a review of the cap.
Agreeing with the need for fungibility between the FDI and FII caps, he said it was "a neater and uncluttered approach to foreign investment". The government has already adopted the strategy for telecom and airports.
A committee under Chief Economic Adviser Ashok Lahiri had proposed doing away with the FII sub-ceilings for telecom, defence, public sector banks and insurance. The proposal has, however, not gone through owing to concerns raised by the Reserve Bank of India.
Chidambaram said the markets could absorb more portfolio investments but the effect on prices and foreign exchange reserves had forced the government and the RBI to tread cautiously.
