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Finance minister Arun Jaitley called the retrospective tax a 'retrograde idea' that sent a very negative signal to the world of investors and as a result investments dried up.
Replying to the budget debate in Rajya Sabha late on Thursday night he said the government will not create any fresh controversies on retrospective tax.
He said the government recognised the Parliament's sovereign right to legislate retrospectively, but said "as a policy our government won't use that power"
He also assured the house that assessing officer will not issue new notices that they could have issued after the retrospective amendment. These cases will be referred to a mechanism created under the Central Board of Direct Taxes (CBDT)
The Union Cabinet on Thursday cleared a Bill to raise the foreign investment ceiling in private insurance companies from 26 per cent to 49 per cent, but inserted a provision that the management and control of these companies must be with Indians. This cap will be composite — both foreign direct investment (FDI) and foreign portfolio investment.
Experts said this meant voting rights of foreign investors would not be capped at 26 per cent but they cannot have contractual agreements for control of insurance companies.
The Cabinet Committee on Economic Affairs this morning gave its approval to changes in the Insurance Laws (Amendment) Bill, which will now be taken up in the current session of Parliament.
Finance Minister Arun Jaitley said in the Rajya Sabha: “The decision to have a 49 per cent foreign investment cap for insurance was taken by the National Democratic Alliance government in its previous term, but we had agreed for a 26 per cent ceiling after the Congress party insisted on that. We have gone back to 49 per cent, our earlier decision.”
India may soon become the preferred destination for international investors as the country's weight in global emerging market (GEM) funds has hit a record high of 10.5% in June. These funds are overwhelmingly bullish on India, says a Merrill Lynch survey of 60 global investors.
India's weight among GEM funds was 7.5% during the peak of 2007, which later declined below 5% in the middle of 2008. The weight rose to 8.5% in November 2010, but dipped below 5% within a year. However, it started rising since September last in the hope of a business-friendly government at the Centre, and ever since Narendra Modi won the elections by a thumping majority, reigniting hopes of a revival of stalled projects, Sensex has been flirting with greater heights.
Foreign institutional investors ( FIIs) have pumped in nearly Rs 69,000 crore so far this year in Indian equities. As a result, the Sensex surged 23% in rupee terms, and 20% in dollar terms, outperforming almost all major global Indices.
"Over the past two weeks, we have met nearly 60 investors. There's practically no debate that re-rating would drive markets, but in the near-term, some investors agreed that there could be a slight pullback due to global concerns and a possible monsoon failure. But most wanted to buy in the dip," said Merrill Lynch.
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