A Lot in Store in a Stable Budget: FM

Minister allays fears about tax shocks, reaffirms commitment to fiscal discipline Finance Minister P Chidambaram has promised stable taxation rates, more reforms, and committed to fiscal rectitude at all costs, allaying concerns about tax shocks and offering a peek into priorities that will shape the next budget. Chidambaram told investors in Hong Kong — the first stop on his fournation tour to woo investors to India — on Tuesday that the Indian economy will grow "no better than" 5.7% in the current fiscal as he declared that there was no case to downgrade the country's sovereign rating.  "The market has been cautious leading into what is seen as an 'election/populist' budget in February. The finance minister was decidedly more positive. He suggests the fiscal deficit target will be met, taxes will not be raised and while policy will and should be biased towards the poor, the budget will offer a lot," said a note put out by Citi, which co-hosted his meeting with more than 200 equity and fixed-income investors. His comments about taxes are significant especially since the global debate over taxing the rich more has landed on Indian shores, with some murmurs about taxes such as inheritance tax or estate duty on the wealthy. Won't Breach Fiscal Deficit Target: FM  Chidambaram's statement is also important as the previous budget, presented by his predecessor Pranab Mukherjee, had unveiled a host of controversial measures such as the General Anti-Avoidance Rules (GAAR) and retrospective amendments to tax laws.  The minister, who is due to travel to Singapore, London and Frankfurt next to meet investors, said while the economic growth would be muted this year, he expected it to gain momentum next fiscal year and grow 6-7%. He also sought to allay apprehensions of ratings downgrade. "I was not worried when I took over (as finance minister) in August 2012, and after so many steps that we have taken, I think I should be less worried. In fact, all of us should be less worried. There should no case whatsoever for anybody to downgrade India." Rating agencies S&P's and Fitch had last year cut their ratings outlook for India to "negative", citing its slowing growth and high deficit. The warnings and fears of a possible impact of arating downgrade to junk status oninvestment flows shook the government, prompting it to unveil a slew of long-stalled reforms. The government opened up the multi-brand retail sector to foreign investments, deregulated diesel prices and capped the subsidy on cooking gas. Asserting that fiscal deficit would be kept at 5.3%, Chidambaram said there was room to sell more state assets to ease the strain on finances and that the government would raise $5 billion from such divestments in the current financial year. "Under no circumstances will I agree to breach the fiscal target of 5.3% (in current fiscal)… The first step is fiscal consolidation and (India is) committed to the path of fiscal prudence... next year I will budget it no more than 4.8%," he told PTI.  Chidambaram said the government had also effectively managed the GAAR issue. "There is universal acknowledgement that we have handled the GAAR situation fairly effectively and buried the ghost that GAAR will be some kind of a monster," he said. The Citi note said the FM heard the assembled investors patiently and informed them about the long-term reforms picture that includes reducing fiscal deficit by 0.6% every year to bring it down to 3% by 2016, a GST regime and faster clearance of infrastructure projects. "The FM was both clear and confident — of what needs to be done, how and when it will be done, and timelines. Importantly, there was also a lot of openness and willingness to take in audience feedback and suggestions. So he was not just talking, but also listening," Citi said.  Chidambaram, who raised import duty on gold on Monday to discourage imports of the yellow metal, allayed concerns about India's high current account deficit, which stood at a record 5.4% of GDP in July-September quarter. "The silver lining is we are able to finance the current account deficit without reserves," he said.