Union Budget 2013: Finmin gets into damage-control mode

NEW DELHI: The Union Budget has turned North Block into a fire-fighting zone, the day after.
If March 17, 2012 (the day after Pranab Mukherjee's last Budget), was spent clarifying provisions related to the General Anti-Avoidance Rules (GAAR) and the Vodafone tax dispute, the finance ministry brass spent most of Friday grappling with angry foreign institutional investors (FIIs) and bond traders.
The day kicked off with economic affairs secretary Arvind Mayaram and the capital markets division headed by Anup Wadhawan first focusing their attention to clear the confusion over the tax residency certificates issue. After all, the move had spooked the markets on Thursday with the sensex closing 291 points lower.
Simultaneously, the Budget division led by Rajat Bhargava was working on clarifying the position on government borrowings after the bond market saw a steep erosion in the value of government securities. It was Wadhawan's team that was first off the block to issue a statement saying that the government will maintain status quo on the Mauritius treaty and FIIs will not be asked to bare all.
By evening, a clarification on bond markets also came through although the damage could not be controlled and the 10-year yield fell further on Friday.
While the confusion over bonds appeared to be a one-off event, the constant worry of FIIs and the government's attempt to woo them back has become a regular phenomenon of sorts. In fact, even a large chunk of the conference call attended by Mayaram and chief economic advisor Raghuram Rajan was devoted to clearing the air.
During the call set up by Bank of America Merrill Lynch, the finance ministry is learnt to have assured long-term stability in the rules related to FIIs.
"The investors were assured that there was no move to change the rules," said a source privy to the discussions. At the same time, the officials said that some of the provisions were introduced to ensure that the rules are in line with double taxation agreements that India has signed.
But ask most officials in the finance ministry about the reason behind the repeated confusion and the blame goes to the revenue department. "They did it last year and they have done the same this year as well," said a top official in the ministry. Another official was surprised over a glaring mistake which led to the entire confusion. While announcing the change last year, the revenue department did not incorporate the provision in the Finance Bill.
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