The Hindu Business Line : Dexterous moves

CONSIDERING THE DELICATE nature of the ruling arrangement at the Centre, the Finance Minister, Mr P. Chidambaram's reply to the Budget debate in Parliament was vested with more than ordinary significance. His response on the twin questions of securities transactions tax and hike in foreign investment limits in telecom, insurance and aviation had been awaited with great anticipation. In the event, his reply demonstrates certain dexterity in that he has chosen not to take the Opposition head on but resorted to some tactical retreat with the hint of the battle being joined at some future date.

Take the case of the securities transactions tax. Clearly, the vast majority of stock market participants had been unhappy with the proposal to tax these transactions. And with good reason too. The new proposal threatened to undermine the latitude available to them in sheltering from tax, incomes accruing from such transactions. The question, therefore, was the extent to which the Minister would relent in the face of some determined opposition from this community. He has yielded some ground by making a distinction between delivery and non-delivery based transactions and bringing down the rate to a tenth of what was originally proposed for the latter. For added effect, he has also proposed that any tax paid on transactions can be offset against that payable on profits from the securities business. The professional investor community cannot really sustain its campaign of opposition for fear of being seen as being churlish in the face of such manifest reasonableness on the part of Finance Minister. But since this was always seen as a measure aimed at plugging tax evasion in stock market transactions, one can be sure that the Minister will seek a revision in the rate the next time around, having won public acceptance for the concept itself.

A similar dexterity can also be seen with Mr Chidambaram's response to the criticism on raising FDI limits in three key sectors. He has not said that he would review the proposal and thereby concede political ground to the Left parties and the BJP. At the same time he has not given any concrete indication that the enhanced limits would be put in place no matter what. The latter stance would have forced the Left parties to bring in some kind of legislative initiative to the Budget proposal whose passage must inevitably result in the fall of the present Government. But some indication that the Government is inclined to lean in favour of a more liberal foreign investment regime can be had from Mr Priyaranjan Das Munshi's criticism of the Left for wanting to dictate policy and daring it to bring the Government down on the question. The Government cannot duck for long the issue of hike in FDI limits without denting its reformist credentials. Also pressure is bound to increase from domestic investors who see in the hike, an opportunity to exit at a profit from these ventures by ceding control to their overseas partners. Mr Chidambaram may have bought time. But the issue itself will remain to haunt the Government.

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