India backtracks on tax reform criticized as an investment killer

As the clamor over India's flagging economic fortunes mounted, finance minister Pranab Mukherjee on Monday put a controversial tax reform in the deep freeze to woo back foreign investors.

Known as the General Anti-Avoidance Rules, or GAAR, the new tax rules were designed to curb the laundering of "black money" through the practice of "roundtripping" cash from India through safe havens like Mauritius before plowing it back into Indian investments. But as desirable as that may sound, Mukherjee concluded that the move should be delayed for a year to prevent any further loss of capital, given the recent downgrade by Standard & Poors and various economic signals that have spooked foreign institutions.

The Wall Street Journal's India Real Time blog talked to a few experts to determine why economists, as well as business tycoons, have welcomed the delay, while the government's decision to put FDI in multibrand retail in the deep freeze earlier this year was touted as more evidence that the sky is falling.

“At a time when our current account deficit is so high we can’t scare away foreign capital. Now that GAAR is deferred, India will stop underperforming global peers at least,” the WSJ quoted Sandip Sabharwal, chief executive officer of portfolio management services at Prabhudas Lilladher, as saying.