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India finance minister aims to cut deficit, clarify taxes

India’s new Finance Minister on Monday sought to soothe worried investors by saying he would bring clarity to tax laws and unveil a plan to rein in the country’s fiscal deficit.

He also suggested he wanted interest rates to be lower, prompting bond yields to pull back.

“Since investment is an act of faith, we must remove any apprehension or distrust in the minds of investors,” Palaniappan Chidambaram told reporters in his first comments on policy since becoming finance minister on July 31.

India’s economy grew at 5.3 percent in the March quarter, the slowest in nine years, as companies held back investment, partly on worries over uncertain policymaking, including tax proposals that could be implemented retroactively.

“We are conscious that current interest rates are high. High interest rates inhibit the investor and are a burden on every class of borrowers,” Chidambaram said.

“Sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers. We will take appropriate steps in this regard,” he said.

Bond yields fell 5 basis points after his comments on interest rates.

Chidambaram said the government hopes to bring investment back up to 38 percent of GDP, its level in the fiscal year that ended in March 2008. It was 32 percent of GDP in the year that ended in March 2012.

“Uppermost in my mind is the duty to regain the confidence of all stakeholders. Obviously, where necessary, our policies have to be modified or fine-tuned in order to meet the expectations of different stakeholders,” he said.

Chidambaram, who was previously home minister, returns to a finance ministry post he has held twice before, and investors hope he is able to revive the prospects for an economy that sputtered under his predecessor, Pranab Mukherjee, who left his post to become India’s president.

However, political opposition, including from within the ruling Congress party coalition, has curtailed the government’s ability to push through reforms.

India’s fiscal deficit has been bloated by hefty fuel subsidies and other populist spending, and the government of Prime Minister Manmohan Singh has been politically unable to raise subsidised diesel prices.

India’s budget deficit for the fiscal year that ended in March was 5.76 percent of GDP, and many economists say its aim to trim that to 5.1 percent for this fiscal year is optimistic.

For the April-June period, the deficit rose to 1.9 trillion rupees ($34.08 billion), or 37.1 percent of the full fiscal year 2012/13 target. ($1=55.75 rupees)