India Inc's wishlist: less tax, more reforms

Union Finance Minister Pranab Mukherjee will have to do a tough balancing act while presenting the Budget on July 6 in view of an unprecedented global meltdown, a slowing economy and ballooning fiscal deficit. Expectations are high that a decisive electoral victory for the United Progressive Alliance (UPA) will mean a reformist agenda.

The Budget will carry forward UPA's flagship programmes like the National Rural Employment Guarantee Act (NREGA) and Jawaharlal Nehru National Urban Renewal Mission (JNNURM) along with some changes in duties. But precarious fiscal deficit will force the Government to focus on revenue neutral changes.

So what does India Inc wants from the Union Budget? Face the Budget discussed the issue with Confederation of Indian Industry (CII) President and TVS Motor Company Chairman Venu Srinivasan, former CII president and Hero Corporate Services Chairman Sunil Kant Munjal and Federation of Indian Chambers of Commerce and Industry (FICCI) President Harsh Pati Singhania.

Venu Srinivasan started the discussion by saying that the country wanted the reform process to gather speed.

"Reforms will be the first thing on our mind when we listen to the Budget speech. We would like reforms in pension, FDI and disinvestment because reforms have been almost stalled for the last five years," Srinivasan said.

Sunil Kant Munjal echoed Srinivasan saying the Government must put reforms on top of the Budget agenda.

"I think the intent will be announced but how much I am not quite sure right now as to how much of it (reforms) will happen in this Budget. As you yourself said the headroom available to the Finance Minister is some what limited. Currently the need is to kick start the economy on to higher plane. I would imagine focus on infrastructure and spending would be the key," said Munjal.

Government officials off the record admit that it is going to be wait-and-watch till September and perhaps after that they will take further measures as far as stimulus is concerned.

"I get a sense that basically the Government means action. They want to get into things very fast. How the economy goes through part of this year is a situation that has to dealt now. When September comes we can take stock and accelerate or decelerate. But there is a need to take measures now," said Harsh Pati Singhania,

However, Revenue department is reportedly unhappy will excise cuts and would want partial rollback.

"CII’s personal opinion is that excise duty should not be rolled back to the original level. I think the growth shoots are early and although confidence is increasing, I think the government by increasing excise duty should not snuff out growth. At the same time I understand revenue department’s anxiety. Therefore Government should do revenue neutral actions and reforms rather than going back to revenue raising measures," said Srinivasan.

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What does the manufacturing and export sector want from the Budget?

"I think it needs to be combination of both. One, continuation of some of them because the industry has still not fully turned around and manufacturing sector took the worst beating in this slowdown. They also need to address some sectors afresh. Some sectors got addressed and some did not. I would hope to see a combination of these in the Budget and a review sometime in September," said Munjal.

Disinvestment policy

"I am quite hopeful that Budget will address the issue of disinvestment and FICCI has raised this issue and said that it is one the key areas through which the government can raise revenue. The Government really needs to raise revenue at this point of time. Disinvestment is not equal to privatisation. There are very good Government companies and even if the Government sells a small amount of shares in the market, it would give revenue and also give a boost to the stock market in general," said Singhania.

Will goods and services tax (GST) be implemented?

Srinivasan claimed that those opposing the GST must realise that even though the value added tax (VAT), too, was initially opposed, but later on all the states realised its importance.

"The GST requires a consensus just like the VAT required a consensus among the states. It will take a little longer than the April 2010 deadline. I am hoping that a few months after that it will get implemented because GST is one thing that all of us in the industry are fighting for because the cumulative effect of taxes on export is very bad plus the inter-states obstacles to goods crossing states’ borders is causing lot of delays and money. It is very important for this country to reduce transaction cost," Srinivasan.

Munjal seconded Srinivasan’s views saying, "GST is a big deal. VAT was the biggest tax reform in independent India. This would be the second one. It is important to start GST even in an imperfect form. We must also announce CST reduction for two per cent to one per cent or if GST is implemented then to zero. We must remember that when VAT came in, revenues of all the states went up. GST will allow them to moderate the revenue down to 12 per cent, widen the net and actually get higher collections."

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What is India Inc’s demand on the infrastructure front?

"There are two ideas. One is PPP (public private partnership) reforms so that infrastructure projects take off. The second issue would be the monitoring agency. I think in some form the monitoring agency will come under the Prime Minister’s Office," said Srinivasan.

Can the manufacturing industry expect any significant sops and will the MAT go?

Munjal made it clear some taxes need to go.

"I don’t think MAT (minimum alternate tax) will go this time. But I certainly feel that FBT (fringe benefit tax) should go. Investment allowance should be brought back to encourage more investment. Higher depreciation should be allowed for a year or two to encourage additional investment. The hill state benefits have worked quite well and they should be continued till 2013 as they were originally planned. We have to do the things that need to be done," said Munjal.

"We certainly hope that the FBT goes. It gets Rs 4,000 odd crore and contentious issues are involved on a whole lot of fronts. It is perhaps not worth the effort. Service tax, excise duties and customs duties should be maintained at the current level and that should be done for at least another year," Singhania added.

Additional cess?

"I hope it won’t be there. We have asked for another cess to be rolled back and have one rate of taxation which is revenue neutral and easy to administer. Certainly the roads (Ministry of Road Transport & Highways) I believe have adequate funds. I don’t see the need to collect any more cess," said Srinavasan.

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"The expectation is only around the surcharge (on corporate tax). This is going to be a tough one for the Finance Minister this time. I hope that money collected under education cess is used for vocational training," added Munjal.

Exemption under 80C could go from Rs 1 lakh to about Rs 1.5 lakh. At present home-buyer gets the benefit of tax exemption of Rs 1 lakh on principal repayment. This move could increase spending power in the hands of the consumer. Is it required to kick start the economy?

Singhania quickly pointed out that it could be a bold move.

"At FICCI we believe that there is need to bring back the consumer to the market. Therefore the widening of either personal income tax exemption of widening the slabs which would allow them to have more money to spend is crucial. The issue of dividend distribution tax’s cascading effect has to be looked into," he said.

Hope from Budget

"I think the main thing will be intent. We expect rationalisation which is revenue neutral. Intent should be very strong and very clear. Rationalisation should take place across board," said Srinavasan.

Munjal added, "The Government needs to lay out intent for the next five years and also lay the foundation for what it wants to do. It is clear all of it cannot be done this year. It must talk of administrative reforms, inclusiveness, enhancing some of the schemes. But the big spend, I hope, on infrastructure will come."

"This will be a very significant Budget and the question is it has to straddle both intent and action. You can’t just have intent and a roadmap which is very important, but at same time it requires action. There has to major spending on agriculture, on social sectors like health, education and human capital development. It is a difficult one but we are confident that the Finance Minister will come out with a good Budget," concluded Singhania.