Arvind Panagariya: How we shoot ourselves in the foot
The government has not acted to end tax terrorism, which means the 'Make in India' campaign is in jeopardy
In a recent interaction with Finance Minister Arun Jaitley, former Finance Minister P Chidambaram said that if he had had 282 MPs, he "would have passed a simple legislation that is required to undo" retrospective taxation. But the former minister's actions belie his words. Rather than demonstrate any inclination to repeal the law, as finance minister he had aggressively deployed it. The running joke during his tenure was that the National Advisory Council set the expenditures, the ratings agencies decided upon the fiscal deficit, and the finance ministry unleashed its taxmen to collect enough revenues to satisfy the expenditure and deficit targets.
Using a term popularised by candidate Narendra Modi, this "tax terrorism" was among the root causes of the dip in the growth rate from which the economy is yet to recover. While Mr Jaitley has promised not to open new cases of retrospective taxation, his ministry too has been slow to take actions that would soften the blow from the old cases and end the tax uncertainty that continues to dog future investors. The ultimate victim of the delays on both counts has been the prime minister's Make in India campaign.