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Pranab's swan song strikes flat note

business Updated: Jun 25, 2012 23:26 IST
HT Correspondent

As Pranab Mukherjee prepares to move from the North Block to Rashtrapati Bhawan, the government and the Reserve Bank of India (RBI) on Monday announced a string of measures to mobilise foreign exchange inflow from overseas investors to stem the rupee's slide.

The steps, announced a day ahead of Mukherjee's expected resignation as finance minister to contest the Presidential election, failed to impress investors with both currency and stocks sliding.

The RBI, in consultation with the government, announced measures (see graphics) to attract dollar inflows to offer a lifeline to the rupee that has slid nearly 26% in the last one year.

It closed at 57.09 on Monday, wiping of the 65-paise gain ahead of the RBI's announcement.

The benchmark Sensex of the Bombay Stock Exchange dropped 0.5%, or 90 points, and closed at 16,882.

Hemmed in by criticism of stalled reforms and growing internal concerns of policy paralysis in the backdrop of a slowing, high-inflation economy, there were heightened expectations of a flurry of reformist announcements on Monday.

"Once again, the government unnecessarily raised expectations only to disappoint," said Rajeev Malik, senior economist, CLSA.

Mukherjee took over as the finance minister when the world economy was going through the worst crisis in eight decades.

He successfully shepherded the economy through the crisis, but many experts felt a lot of reforms are still all work in progress: tax simplification, easier entry for foreign capital, improving welfare delivery.

Of late, critics have been unsparing about some of his policy pronouncements.

India's gross domestic product (GDP) growth slumped to a 9-year low of 5.3% during January to March 2012 and 6.5% in 2011-12 pummeled by a crippling industrial slowdown, rising prices, weakening rupee and a sputtering global economy.

The budget provision to empower taxmen to scrutinise older corporate transactions such as the Hutch-Vodfaone deal of 2007 and uncertainty over General Anti-Avoidance Rule has sparked fears among global and domestic investors, who say this would choke foreign investment into India.

From a country-wide Goods and Services Tax (GST), to a Direct Taxes Code (DTC), from allowing foreign direct investment (FDI) in pensions and insurance sector to opening up of the banking sector, the finance ministry has its task cut out to execute the unfinished reforms agenda.

"Opening up further FDI in defence production, civil aviation, opening up FDI in multi brand retail, timely implementation of GST all are reforms that will go a long way in creating an environment for industrial expansion and economic growth," Adi Godrej, president, CII told HT.