Jaitley’s High Jinks
Arun Jaitley’s first national budget as Indian Finance Minister comes at a critical juncture for India. Most economists would probably agree that India should be challenging China and the major advanced economies a lot harder than it is right now, but the reason it isn’t is because its enormous economic potential seems to have been squandered. Jaitley’s declaration that he is “duty bound” to usher in a policy regime that will result in higher growth seems to have been generally well received by those with a stake in the Indian economy. But excuse me if I play the contrarian here! True, the budget eases some barriers to foreign investment, and places an emphasis firmly on investment in industry and infrastructure which is sorely needed. But after leading investors to believe that the previous Government’s retrospective tax measure – the thing that has done the most damage to India’s international credibility – would be consigned to history, Jaitley performed a feat of linguistic gymnastics in his budget speech that seemingly endorsed and condemned retrospective taxation all at the same time. The upshot is that the Government won’t introduce retrospective tax laws that lead to “fresh” tax liabilities, but existing cases resulting from the 2012 amendment must proceed to their “logical conclusion,” whilst a committee will be set up by the tax authorities to examine future cases that arise. At least I think that’s what he meant. Either way, it kind of undermines Jaitley’s repeated pronouncements on the importance of tax certainty, especially with the Direct Taxes Code once again kicked into the long grass. But then perhaps we shouldn’t rush to judgment: the BJP has only just got the keys to the house, and the social and economic challenges facing India are enormous. Rome wasn’t built in a day.