Austerity measures on the way, though no need to panic: Pranab

Finance Minister Pranab Mukherjee has said the government would be resorting to a fresh spell of austerity measures to deal with the problems, but made it clear that he was not pressing "panic button".

Winding up a debate on Finance Bill 2012 in the Rajya Sabha, he said: "India's growth was still intact despite moderation in the Gross Domestic Product (GDP) which dropped to disappointing level of 6.9 per cent in 2011-12, down from 8.4 per cent in the previous two years."

"International situation is difficult. Country after country is witnessing economic crisis ...I shall have to keep in mind its a difficult world...I cannot live in a world which is not real", he said.

The House later returned the Bill marking completion of the three-stage budgetary exercise for 2012-13 by Parliament.

Referring to crisis in eurozone and its impact on India, Mukherjee said, the government would resort to some "unpopular" steps to deal with the fiscal problems.

"I am going to issue some sort of austerity measures...whether people like it or not ... to convey a signal that we are responding to the situation", he said, adding, "We are not pressing panic button."

Mukherjee, however, did not spell out the austerity measures.

His statement came on a day when BSE Sensex slipped below the psychological mark of 16,000, mainly impacted by problems in the eurozone countries and other rich nations.

Referring to members mentioning about the Finance Minister biting the bullet, Mukherjee said: "I am not hesitating to bite the bullet if it achieves the goal, not if it is ending in a fiasco."

Making it clear that India has been taking steps to attract Foreign Direct Investment (FDI), Mukherjee said sometimes decisions are time consuming because of coalition compulsions.

As regards the decision to amend the Income Tax Act with retrospective effect following Supreme Court decision in the Vodafone tax case and the concerns expressed by certain members, he said, "Indian Parliament is omnipotent...It has the power to amend any Article of the Constitution."

He said Vodafone was clearly told that it has to pay tax on its acquisition on Hutchison's stake in the Hutichison Essar through a $11.2 billion deal which was signed in Cayman Islands.

Vodafone had earlier won the tax case in the Supreme Court after it turned down the judgement of the Bombay High Court.

The amendment to the I-T Act seeks to tax overseas mergers and acquisitions involving domestic assets. Following the amendment, the British telecom major Vodafone would have to pay Rs 20,300 crore as tax, interest and penalty.

Mukherjee said he had even told the British government that retrospective tax amendment undertaken by India was "exactly" the same as was done by the UK earlier.

He said the failure to amend tax law in the wake of the Supreme Court judgement would have cost the exchequer Rs 40,000 to Rs 50,000 crore as several companies, which had not contested and paid their dues, would have demanded refunds.

"India is not a tax haven", he said, adding the country cannot be compared with Cayman Islands and Isle of Man.

The amendments, he clarified, will not override provisions of the Double Taxation Avoidance Agreements (DTAA) which India has with 82 countries.