ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Whirlwind Tours to Woo Investors

Whirlwind Tours to Woo Investors

A desperate government is, it seems, ready to do almost anything to boost net capital inflows.

Union Finance Minister P Chidambaram knows well that the fate of the Indian economy is a function of net capital inflows. His task, as union finance minister, it seems, is to do all he can to please the financial markets, for it is these bourses that have the power to engineer booms and busts with the volatile inflows and outflows of capital. He has embarked on a whirlwind tour – if it is Tuesday (the 22nd of January) this must be Hong Kong; if it is Wednesday this must be Singapore. It is all about “India for Investment”, hosted in Hong Kong by Citibank and BNP Paribas and in Singapore by Bank of America Merrill Lynch. The media has simply been reproducing the reports of these “shows” penned by the hosts themselves. With Hong Kong and Singapore done, Chidambaram now has London and Frankfurt on his itinerary; it is remarkable that he seems to have arranged to pay his hosts even to tell the tale of his “shows” to the folks back home (the media was not invited).

So we would not know if Li Ka-shing, the chairman of Hutchison Whampoa, met Chidambaram in Hong Kong. One recalls the former because it was his Li Ka Shing Holdings that raked in $11.1 billion when it sold its controlling stake of 67% in Hutchison-Essar in February 2007 to Vodafone in an offshore deal that circumvented payments of capital gains tax to the Government of India. As far as Chidambaram is concerned, there is no point in grappling with the increasing incidence of “tax avoidance” that the financial opening of the Indian economy has led to. At the Hong Kong show, he is reported to have said: “There is universal acknowledgment that we have handled the GAAR [general anti-avoidance rules] situation fairly effectively and buried the ghost [our emphasis] that GAAR will be some kind of monster”. So now, with the acceptance of the recommendations of the Parthasarathi Shome Committee, there is no need to pay too much attention to taxation of capital gains from the offshore sale of equity shares in foreign subsidiaries with their underlying assets in India. Of course, the Shome Committee was appointed precisely to facilitate what Chidambaram, Prime Minister Manmohan Singh, Vodafone and Hutchison wanted. And, the finance minister and prime minister justified what they did – restoring the capital gains tax exemption – in the name of reviving “animal spirits”.

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