The Finance Minister asked two rather difficult questions of captains of India Inc this afternoon: why are investments in industry drying up and why is there all round hesitation to declare actual income and therefore pay tax.

The Finance Minister asked two rather difficult questions of captains of India Inc this afternoon: why are investments in industry drying up and why is there all round hesitation to declare actual income and therefore pay tax.

Mr Finance Minister, India Inc may be able to explain away the first question but it is unlikely that your second one will ever be answered truthfully.

It is a time tested practice in India to evade tax, else why would only 42,800 people from among 1.2 billion Indians confess to earning over Rs 1 crore in taxable income?

Were you kidding us when you gave such an insignificant number of the super rich who pay taxes?

P Chidambaram was at his candid best today when he said this number was given out deliberately to shock people during the Budget speech on Friday.

We are shocked sir. We remain in shock. You have stated something every Indian already knows: that our income tax compliance record is abysmal. Now, what are you doing about it?

Chidambaram has been trying to instil the fear of god, or more accurately the fear of the income tax inspector in the super rich, saying all high value transactions are being monitored. And today he let out yet another statistic: already 35,000 tax default notices have been sent out and another 35,000 notices are in the process of being sent out. Only 70,000 defaulters? Are you kidding me?

He said during an interaction with industry chambers this afternoon that when he was a lawyer, he religiously declared his income and paid tax. Sir, how does this encourage anyone to follow your example?

Shouldn't we be strengthening tax compliance laws instead?

On income tax refund arrears, he said in between April-February of the current fiscal, the tax department has given 69,000 refunds, against 84,000 given in the corresponding period last year.

But coming back to the FM's first question of investments drying up, not one of the industry captains present today had an answer on why investments have dried up.

This, despite the Budget proposing a 15 percent investment allowance for companies investing Rs 100 crore in plant and machinery, over and above depreciation.

All Ficci president Naina Lal Kidwai came up with was a plea to reduce corporate tax rate which now stands at about 36 percent.

Chidambaram has taken up cudgels to bring back investment. He is planning extensive interactions with local industry representatives in the NCR region, Mumbai, Chennai, Bengaluru, Hyderabad and Kolkata shortly to figure out what is needed to spur investment.

Thereafter, he will begin wooing foreign investors during his visits to US, Canada and Japan between April and May this year.

All in all, the FM was quite candid in today's interaction, rejecting several industry demands outright:

1) On SUVs: On hike in excise duty on Sports Utility Vehicles (SUVs) from 27 percent to 30 percent, he said the increase will not dampen demand and was levied because 98 percent SUVs run on diesel, a fuel the government subsidises. The 3 percentagepoint excise increase is the government's way of recovering the diesel subsidy from SUV owners.

2) On fleet modernisation: Again, the FM brushed this aside. Why should the government incentivise someone who has already used his vehicle beyond depreciation, he wanted to know

3) on MAT: This debate was close some years back, he said brusquely and there was no case for reopening the debate at all.

4) Fear of tax men: There is no interface nor any plans for introducing an interface between IT officials and assessees. So there was no need to relook into the IT compliance norms

5) Royalty: Why should Indian companies not be taxed when they repatriate profits as royalty and not as dividends, he wanted to know. Anyway, the tax on royalty is within the DTAA norms.

Not only was the FM advising India Inc liberally, he also had a word of advice for RBI Governor Subbarao: reduce interest rates.

"I hope interest rate will come down, RBI Governor will have to take a call, we have done all we can on the fiscal side."