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‘Ad-hocism in governance hurting image’

business Updated: Apr 16, 2013 22:03 IST
HT Correspondent
HT Correspondent
Hindustan Times
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India needs to quickly turn around its image as an unstable destination prone to ad hoc policy moves, if it were serious about drawing billions of dollars of investments to jumpstart the economy, S ‘Kris’ Goplakrishnan, the new president of industry chamber Confederation of Indian Industry (CII), cautioned on Tuesday.

“Investment sentiment about India has changed for the worse in the last couple of years,” Gopalakrishnan, who is also the executive co-chairman of information technology services major Infosys, told HT.

“To attract foreign direct investment (FDI), the government will have to provide a stable policy regime,” he said.

In the budget speech for 2012-13 the government had introduced changes in the Income Tax Act, 1961, to allow imposition of taxes on foreign companies who had purchased Indian entities, applicable to past transactions also.

The controversial proposal empowered taxmen to scrutinise older corporate transactions such as the Hutch-Vodfaone deal of 2007.

This, along with uncertainty over general anti-avoidance rule (GAAR), has sparked fears among global and domestic investors, who say this would choke capital inflow into India.

In January the government deferred by two years the GAAR rules that empower taxmen to scrutinise deals suspected to have been structured only to avoid paying taxes.

“There is a concern about a stable policy regime in India. There is concern about some ad hocism in government-decision making. This (the concern) is not only limited to foreign investors. It applies to domestic companies also,” Gopalakrishnan said.

Finnish mobile phone maker Nokia’s Indian unit received a R2,000 crore tax claim in March for the non deduction of tax deducted at source paid as royalty to its parent. The company has moved the Delhi high court on the order, which it intends to contest “vigorously”.

Shell India Markets Pvt Ltd, the local unit of Royal Dutch Shell Plc, has also been at loggerheads with the tax authorities, who accused it of under-pricing an intra-group share transfer by R15,220 crore.

“Industry does not want to evade paying taxes. It is the ad-hocism that is hurting sentiment. It is important to create an institutional mechanism for seeking clarifications on tax disputes,” the CII president said.

To arrest the slowdown in the Indian economy, Gopalakrishnan called for hastening the implementation of stalled projects, particularly in infrastructure projects, which can spin jobs and multiply incomes.