Gloomy Investment Climate

While the government has postponed its decision to implement the GAAR (General Anti-Avoidance Rule) by one year, the market is in no mood to welcome the same and the FIIs are very much in the sideline to get first hand clarification on the same. It does look pertinent that the government in a hasty manner went to introduce the GAAR when the economy is staggering because of the global factors and hooked the investing community in an uncertain territory. While the Foreign investors are not much enthused by policy indecision, the government was in no way to show any leeway for the tax demand on Vodafone.

Inability to execute policy actions

It’s been reported the government is seeking country’s top lawyers for advice and suggestion before again serving tax demand for Rs.11000 crores. This retrograde tax amendment coupled with delay in many policy decisions like FDI in Retail, Company law, Insurance Bill, Pension Reform Bill have created a pessimistic view upon the market and it’s been noted many big FDI investments are getting delayed or even scrapped. Many big retail international MNC’s like Ikea are not willing or interested to open their own outlets in India. Bharti’s tie up with Wal-Mart is dragging for policy action from the government front in retail.

Growing fiscal deficit

To rein in the burgeoning fiscal deficit and to arrest the downward slide of the rupee, the government is seriously considering giving tax sops for exports. Few months back the government has indeed stated that the state of the economy does not require any tax sops to control the fiscal deficit which is almost near to 9 per cent of the GDP. Now with the burden of large borrowing programme for the next fiscal, it does not want to get hurt by the sliding rupee, which in turn is costing dearly for imports, mainly oil import. . It’s better for the country and economy, if the government acts fast and bring back the last momentum in all around growth.