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India finance minister reassures investors with promise to end tax battles
[NEW DELHI] India's finance minister promised investors on Wednesday to resolve their tax concerns and reassured an increasingly sceptical business community that Asia's third-largest economy can withstand global market turbulence and China's slowdown.
Arun Jaitley's comments showed a marked increase in urgency after he at first dismissed China's currency devaluation and stock market crash last month as external events.
Fifteen months into Prime Minister Narendra Modi's term, officials are pushing hard to kickstart an economy that remains sluggish, despite rosy official growth figures.
Mr Modi met business leaders and economists on Tuesday to ask for investment; he was met with demands for trade protection and big cuts in interest rates to bolster growth.
The government has argued India's relatively closed economy offers protection against the turmoil sweeping emerging markets, but India has not been immune. Most of the gains in Indian stocks since Mr Modi took office in May 2014 have been wiped out.
Mr Jaitley, speaking at an Economist conference, said it was vital to stay on the path of reform and build toward higher growth, which the International Monetary Fund forecasts at 7.5 per cent this year.
He cautioned that the opposition Congress party could further delay a new Goods and Services Tax (GST), but said he would do his utmost to implement the measure by next April 1.
Mr Jaitley said the composition of the upper house would change next April, suggesting the balance of power would tilt in favour of the government.
Business is clamouring for the GST, which would transform India into a single market. Economists estimate that could add up to 2 percentage points to gross domestic product. "It's massive. GST has to happen," Juvencio Maeztu, India CEO for Swedish retailer IKEA, which buys wares from India but has yet to open any stores. "We cannot lose more time on this."
Touching on a sensitive subject for investors, Mr Jaitley said the government was also seeking to resolve pending tax disputes and hoped to resolve "legacy" issues in short order.
The finance ministry decided last week not to press claims for a Minimum Alternate Tax against foreign portfolio investors.
But India is still locked in back-tax disputes with UK telecoms group Vodafone and Cairn Energy.
Without referring to these directly, Mr Jaitley said the government hoped to resolve pending disputes "in not much time".
India's ability to generate an investment-led economic recovery has been compromised by the legacy of a debt-fuelled boom that followed the 2008 global financial crisis.
Asked whether bad loans were the main worry for the economy, Mr Jaitley said: "The banking system is a matter of concern - it is not the main worry, there are no grounds for panic." He said he would be open to looking at consolidation between fragile banks and their stronger competitors.