Between a rock and an abyss.

" India will lose significant ground as a destination for international investment if it fails to align itself with policy and practice around the world and restore confidence in the relevance of the judiciary,' said a letter written by 7 leading industry associations from the US, UK, Japan, Hong Kong and Canada to the Prime Minister, Manmohan Singh. These are Business Roundtable, Canadian Manufacturers and Exporters, Capital Markets Tax Committee of Asia, Japan Foreign Trade Council Inc, Confederation of British Industry, National Foreign Trade Council Inc and the Untied States Council for International Business. HT online, April 2. These organisations are objecting to a proposal in the budget which gives blanket powers to Income Tax fellows to retroactively examine corporate deals dating as far back as April 1, 1962 and levy tax if they so wish. This proposal is in retaliation to the dismissal by the Supreme Court of claims for $2.2 billion withholding tax against Vodafone in its purchase of Hutchison Whampoa's mobile business in India in 2007. Why is the government so keen on passing a law that may be detrimental to Foreign Direct Investment in India? The reason is that another deficit has been has been added to the list of deficits in our economy which makes the government desperate for money. For the first time since 2008 we have a Balance of Payments deficit which means that India has spent more foreign currency than has come into the country, to the tune of $12.8 billion. This is being blamed on high oil and gold prices, both of which we have to import. The RBI has been selling dollars in the market to support the rupee which might otherwise have tanked. The Current Account Deficit more than doubled from $9.7 billion to $19.6 billion and Trade Deficit increased from $31.4 billion to $47.7 billion. The reason why the US, Singapore and Hong Kong attract so much business investment is because of a stable environment in which tax laws are not changed at whim and court decisions are respected. Retroactive change is especially confusing because no businessman can be sure of not being penalised tomorrow for a deal which is perfectly legal today. Our most revered Finance Minister has sought to reassure business leaders by saying that only a few deals will be reexamined. Yes, but which ones? He has also said that India is not a " low tax or no tax country and is not a tax haven ". Precisely. In spite of astronomical taxes we are running deficits in every measure of the economy. Because of wasteful spending and loot. There in lies the nub.