Flagging a concern

It was the time of the year when finance ministers and central bankers from around the globe head to Washington DC for meet­ings of the International Monetary Fund and World Bank. About 20 meetings take place on the sidelines. Though the Greek economic crisis loomed in the background this time, with European Central Bank presi­dent Mario Draghi warning the sit­uation is ‘urgent’, finance ministers, bankers and other top officials also discussed the work of both organisa­tions, focussing on global economy, international development, and the world’s financial markets.

One of the issues that figured in the IMF’s steering committee meet­ings was the success of unconven­tional monetary policies being tried out to ease the situation. Russian finance minister Anton Siluanov flagged off the issue when he told the IMF steering committee: “One of the principal sources of uncertainty in the world economy may well be doubts about the success of uncon­ventional monetary policies in Japan and the euro area. … The Japanese experiment shows the limitations of accommodative monetary policy in the presence of deeply entrenched structural problems.”

Finance minister Arun Jaitley felt the IMF has done little to persuade developing countries to end self-serv­ing monetary policies that only hurt the economies of the developing and poor countries. “The exit, when it commences, could create turbulence in global financial markets. Central banks in the major advanced econ­omies, therefore, need to take into account the impact their policies may have on other emerging and develop­ing economies. The IMF, which has been supporting such policies, also needs to reconsider whether UMPs mil­itate against the core mandate of the fund to maintain exchange rate sta­bility. … It is imperative that interest

Jaitley: potential for turbulence rate normalisation by central banks in the major advanced economies is predictable and well communicated.”

During a session, former US trea­sury secretary Lawrence Summers gave an analogy of how athletes are at their peak, when they make it to the cover of Sports Illustrated. From then on, most of them experience a down­fall in their performance. Contend­ing that great performance in the past does not guarantee similar perfor­mance in the future, he warned that India and China’s good growth in the past should not lead to presumption of continuity. He felt these countries will revert to slower growth.

When Jaitley’s attention was drawn to this comment, he said: “Well, all I want to say is that, with all the mea­sures we are taking, I am confident that India will soon attain double digit growth.” As the head of the Indian del­egation, Jaitley had his hands full on the sidelines of the meeting, allaying concerns from various quarters. The IMF has raised concerns on the fall in Indian bank credit growth (which, at 12.6 per cent in 2014-15, was the low­est since 1995-96) as well as on the high non-performing assets of banks.


The finance ministry’s argument is that demand is picking up with the kind of economic activity that will happen. The finance ministry is engaging the chiefs of public sector banks on 28 April to review lending to infrastructure projects and find a solution to all outstanding problems.

Then there are the concerns on MAT. In his speech, Jaitley made it a point to underscore that the govern­ment was very much aware of the concerns, as well as the unpredictabil­ity and arbitrariness in tax adminis­tration regarding transfer pricing. To prevent harassment, the government is for minimising discretionary provi­sions of field officers and encouraging simplification in procedures.

Safe harbour rules

Jaitley also spent a lot of time ampli­fying the government’s intentions. “We have told tax officials that they should not file appeals in a routine manner and that they should be decisive. Our actions speak for our commitment to a transparent and predictable tax regime and the prom­ise that there will be no retrospective measures. A high level panel was set up for fair treatment of such trans­actions (falling in the ambit of ret­rospective amendments). We have brought out Advance Pricing Agree­ment norms to ensure that tax payers can seek certainty in transfer pricing transactions. We came out with safe harbour rules.”

“Besides, we have opened new benches of the Authority for Advance Rulings,” the finance minister went on to add. “We want to ensure faster redressal of tax disputes before appel­late and judicial authorities. Besides, for the sake of certainty, we have deferred the applicability of the Gen­eral Anti-Avoidance Rules (GAAR) to April 2017; and investments till March-end 2017 have been excluded from the GAAR ambit. As part of our commitment of not being adversar­ial, we did not contest the High Court judgments that favoured Vodafone and Shell. We cleared the air on the Cairns case (that it was a legacy issue) and the recent issue on MAT.”

♦ RAKESH JOSH1 [email protected]

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