Connect to share and comment

India, explained

Day 1: Manmohan Singh seeks to reboot Indian economy

Economist PM calls for a revival of "animal spirit" of Indian business. Grrrrr.
Manmohan singh reboot planEnlarge
Indian farmers sow a paddy in a field in Gorakhpur, Uttar Pradesh on June 27, 2012. A good monsoon could give Prime Minister Manmohan Singh a much needed boost, as he takes over as finance minister. Unfortunately, the forecast is not promising. (AFP/Getty Images)

On his first day as finance minister, Indian Prime Minister Manmohan Singh met with ministry officials for a pep talk and called for a revival of the "animal spirit" of Indian business.

"Reverse the climate of pessimism... revive the animal spirits in the country's economy," India's Economic Times quoted the PM as telling ministry officials.

Would that it were so easy.

What business and investors want is a wholesale revision of India's tax and investment policies to attract foreign capital and make sure India Inc can re-invest more of the money it earns. But Singh is no longer dealing with a country fed up with a planned economy -- as he was in 1991, when he initiated India's economic reforms. Now he's dealing with voters and rival politicians who are mostly fed up with so-called "neo-liberalism."

Meanwhile, slow growth and a plummeting rupee is only one of his problems. He's also dealing with runaway inflation and, worst of all, high food prices -- which hit the millions of Indians who live on less than a dollar a day especially hard.

Two moves (both reversed or revised) by former Finance Minister Pranab Mukherjee may be his first target.

First, due to opposition from the Congress party's allies, Mukherjee was compelled to roll back a decision to open India's retail sector to foreign investment from companies like Walmart -- which the business lobby argues would spur the entry of enough foreign capital to shore up the rupee's losses, not to mention improve infrastructure and reduce agricultural losses due to wastage during transport and storage.  Second, he introduced a retrospective revision of the tax laws along with a move to curb the routing of domestic investments through tax havens like Mauritius (known as "roundtripping") to evade tax. Designed to hit Vodafone with a $2.5 billion stick, the move soured foreign investors on India because it implied that the rules could be rewritten anytime, despite the much-lauded "rule of law."

According to the Economic Times, Singh told the ministry that "problems on tax front" had been a major factor in India's recent travails, suggesting that on that score, at least, business may get some relief.

There may also be moves afoot to boost India's mutual fund sector, perhaps with additional tax breaks for investors.

http://www.globalpost.com/dispatches/globalpost-blogs/india-manmohan-singh-reboot

.

Featured Slideshow

The running of the bulls commenced in Pamplona, Spain (PHOTOS)

Injuries abound during the first days of the San Fermin festival.