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UNION BUDGET
2000 My Budget What do India's CEOs, economists, politicians, and investors want from Union Budget 2000? It is the policy package that will bring foreign investment into the country. It is the great leveller that will offer Indian companies protection as well as power as they prepare to take on the world. It is the repository of a million miracles that will kick-start the economy. It is a funambulist's dream-come-true that will strike the fine balance between a socialist legacy and an open-market vision. And it is the mathematical wonder that can help the country out of the fiscal mess into which it has worked itself. When, on February 29, 2000, Union Finance Minister Yashwant Sinha presents Budget 2000-his financial gameplan for India Inc. in the New Millennium-business will expect him to unveil a series of measures that can do all this, and more. So, just what do the various constituencies-CEOs, economists, politicians, investors, and, that emerging breed, venture capitalists-expect from Union Budget 2000? BT presents India Inc.'s wishlist-as seen through the eyes of the individuals who make it run. CHANDRABABU NAIDU, Chief Minister,
Andhra Pradesh In this century, one of the most important parameters of development will be bandwidth. Therefore, it is necessary that we focus on developing India's telecommunications infrastructure. This can be achieved only through a process of systematic deregulation. Today, the Videsh Sanchar Nigam Ltd (VSNL) enjoys a monopoly in terms of international connectivity. But India can leverage its advantages in terms of professional capabilities only if businesses and individuals have access to networks that plug into the global information economy. I recommend that we do away with VSNL's monopoly. It is important that the National it Task Force's recommendations be implemented in Budget 2000. And, to facilitate the growth of e-Business in India, it is important that the Budget addresses issues like the taxation of on-line transactions without adversely impacting state-revenues. The financial position of most states has deteriorated over the years. This is because the more buoyant sources of revenue are vested with the Centre. I have consistently argued that the Centre should increase the resources transferred to the states to accelerate development efforts at the grassroots level. This budget should seriously address itself to the issue of fiscal imbalances that have crept in over the years in the transfer of resources to the states. PRADEEP SRIVASTAVA, Chief
Economist, NCAER The state of our finances today is almost as bad as it was at the beginning of the decade. This is despite cuts in government spending as a percentage of gross domestic product. But the main reason for India's economic performance in the 1990s not being significantly better than that in the 1980s, despite the reforms process, is the decline in public investment. To the extent that we are unable to achieve the growth rates that the tiger-economies do in their exports, or attract foreign direct investment at the same pace as China, public investment will continue to be the fulcrum of any sustained growth in the medium-term. Given our existing fiscal condition, this cannot happen. Thus, rejuvenating public investment should be the main growth objective of the Budget. However, this cannot be achieved in Budget 2000 alone. I would like Budget 2000 to have a medium-term framework aimed at increasing public investment: 2 years to eliminate revenue deficits and 5 years to ramp up public investment. I would also want the Budget to be extremely modest about how much can be achieved in a year; about setting targets for expanding the revenue-base; and about the ability of the government to efficiently implement any schemes. So, the Finance Bill should contain modest, yet implementable, initiatives which can, in the medium-term, increase revenues and lower expenditure. Finally, and most importantly, I hope Budget 2000 is a credible one. All too often, initiatives are announced and not followed through. The credibility of the government's budgetary initiatives will gain immensely if it is seen to be leading the war against fiscal profligacy, and not just exhorting the rest of us to practise austerity and pay more taxes. BRIAN BROWN, Managing Director,
Indosuez WI Carr Securities I don't expect a major overhaul in Budget 2000. Nor do I expect any fireworks. The economy is already growing; so, the budget is likely to be growth-neutral. Unlike last year, though, we may see some clear evidence of medium-term fiscal reform in it. It will also be a market-friendly budget to ensure that market momentum is sustained. On the economic front, with the recovery under way, the government will use the budget to introduce some more fiscal discipline. I see the finance minister putting a cap on government guarantees and public debt. This year, the fiscal deficit is expected to be close to 8 per cent of gross domestic product. That should come down to 7.50 per cent in fiscal 2001. I see the government reducing fertiliser and some non-food subsidies ahead of the budget. It may also hike kerosene and LPG price after the budget to cut subisides. Indirect tax collection targets are on track, and direct taxes are lagging somewhat, but the last quarter inflow should bring collections close to target levels. The government may also retain the 10 per cent surcharge on corporate tax for one more year. And it could accelerate the PSU disinvestment process as the capital market seems conducive to it. Real interest rates in India have always been high, but the recent cut in the Public Provident Fund and the small savings interest rate by 1 per cent looks like a first step towards the lowering interest rates. The rupee has done well over the past year, having depreciated by a mere 2 per cent. I think the government would prefer that the rupee slide gently-6-10 per cent over the year-given the high oil import bill. As far as the markets are concerned, there is little chance that Budget 2000 will lower the short-term capital gains tax from 30 per cent to 20 per cent, but if this happens, the markets will boom. It will encourage retail flows and further develop the domestic mutual fund industry. It will also bring more FIIs into the market since they have long been pressing the Indian government to do away with long-term capital gains tax. PRADEEP PODDAR, CEO, Heinz It is important to see progressive budgets as steps towards achieving a co-ordinated vision. The single sentence vision for India would be: India as the global powerhouse by 2020. I would like to submit that the entire economic cycle of development and growth finally ends with the consumer. Without an evolving and rich consumer base, an economy cannot sustain itself. We in India have a large consumer-base. What is needed is a consumer who is not only more inclined but also more capable of buying into a better standard of living. For a transformative and sustainable economic evolution in the country, it is imperative that the benefits of this transformation should reach the masses. It is for this that we need GDP growth to be maintained at over 7 per cent so as to create a consumer base which can sustain the economic cycle. For this to happen, we need the initial investment to create this cycle. Besides, if you look at any of our consumer products, over 50 per cent of the price is 'post-manufacture-added' by various duties and levies. In the interest of triggering sustainable growth, these tax and duty structures need to be rationalised progressively to bring more and more consumers into the ambit of consumption. To sum up, FMCGs, in general, and foods, in particular, are catalysts of growth. A.J.V. JAYACHANDER, President &
CEO, ICICI Venture There are several macro-economic issues which I'd like to see Budget 2000 addressing. These are: FISCAL CORRECTION. The combined fiscal deficit of the central and state governments, after adjusting for internal transfers, was 8.50 per cent of the GDP last year. This is clearly unsustainable. Thus, policy measures that aim to eliminate the revenue deficit within a period of 2 years are imperative. WIDENING THE TAX BASE. The budget should contain measures to widen the tax-base and ensure greater tax compliance. The government should remove income tax exemption for agricultural income. RATIONALISING THE LEGAL SYSTEM. India has strong and sound legal institutions. However, the huge backlog of cases and outdated procedures have hindered the legal process. To encourage investment, it is essential to have a framework to ensure speedy enforcement of contracts. REMOVAL OF SURCHARGE ON INCOME TAX. The 10 per cent surcharge on income tax should be removed. The growth in the GDP will ensure tax buoyancy. The budget should also try to strengthen the venture capital industry in the country. Under the present tax dispensation system, all mutual funds registered and approved by the Securities & Exchange Board of India (SEBI) enjoy complete tax exemption on their incomes. However, venture capital enterprises registered with the SEBI, in order to qualify for a limited tax exemption, are required to comply with the provisions of the Income Tax Act. Since the venture capital business is more risky than the mutual funds business, the tax norms for venture capital funds should, at least, be analogous to those for mutual funds. The budget should also replace the existing tax regime for sweat equity and stock options where they are taxed in 2 stages-one at the time of allotment, and another at the time of sale-to a single point. HARSH V. GOENKA, Chairman, RPG
Enterprises The reduction of the fiscal deficit will be uppermost in the Finance Minister's mind as he prepares the new budget. This will translate into an effort to cut expenditure and increase revenues. In specific terms, this is likely to mean a reduction in subsidies on fertilisers and exports. On the revenues front, I expect the government to take steps to reduce interest rates. This will have the effect of giving industry a shot in the arm and will simultaneously boost revenues. In addition, We will see higher import duties on products that are required to be taken off the restricted list. Another potential source of funds to bridge the fiscal deficit is the sale of shares of public sector undertakings. Budget 2000 will probably see a concerted effort on the part of the government to liquidate its holdings. The government needs to pay attention to attracting investment for infrastructure projects. The recent reduction in interest paid on small savings and provident fund makes it even more likely that the government will take steps to channel these funds into infrastructure projects. Many of these projects have assured returns. With the current low rate of inflation, the Union Finance Minister has the opportunity to initiate steps that will turn the revenue deficit into a surplus. K.K. BANGUR, President, Indian
Chamber Of Commerce The Union Budget should aim to stimulate growth. The second-generation reforms must have a vision. The elements of this vision should be: facilitating India's emergence as a global economic power; and improving the quality of life of the common man. My agenda for Budget 2000: INFRASTRUCTURE DEVELOPMENT. The Union government should not absolve itself of this imminent responsibility. LABOUR MARKET REFORMS. Companies should be able to restructure their labour-force in keeping with market demands. The Industrial Disputes Act should be withdrawn. FOCUS ON THE SERVICES SECTOR. It is important that Indian banks give priority to venture capital funding, as this holds the key to the success of knowledge-intensive industries. FISCAL MANAGEMENT. The greatest problem facing the country today is the fiscal mess in which the Centre and the states find themselves. The first task of Budget 2000 is to cut wasteful expenditure. One way to do this would be to downsize government by at least 20 per cent in the coming 2 years. The privatisation of enterprises should also be a major objective of fiscal reforms. PROMOTING DOMESTIC INVESTMENT. As most of our investment will come from domestic sources, policies should be devised to encourage domestic investment. A.P. PARIGI, CEO, BPL Mobile
Communications Globally, telecommunication services have been identified as the key enablers of economic development. Thus, every opportunity including the design of initiatives in the forthcoming Budget 2000 should be viewed as an avenue for the growth of telecommunications, and e-business. What does this involve? There is a need to amend Section 10(23)G, which provides exemption from tax on interest, dividend, and long-term capital gains on investments made in specified infrastructure funds or companies so as to make the gross income tax free for the investors. As opposed to this, at present, there is a CBDT clarification that provides for only the net income to be tax-exempt. The benefit of MAT exemption (Section 115 JA) should be extended to cellular and paging services through amendments to the definition of 'infrastructure' under Section 80-1A (12) (CA) to include cellular and paging businesses. And tax holidays under Section 801A should provide 100 per cent exemption for the full 10 years unlike the present provision wherein it is only 30 per cent for the second 5 years. Further, companies should be allowed to choose the 10-year period anytime in the first 20 years of their existence. I also think that, with the objective of increasing the penetration of cellular services, the existing 48 per cent Customs duty on handsets must be brought down. A lower duty would also discourage the grey market sale of handsets which causes loss of revenue to the exchequer. In the case of the manufacturing sector, MODVAT is made available against the Counter Vailing Duty (CVD) paid which is available for setting off against the excise duty paid on the final product. Since service tax is levied on the service sector, the benefit of Modvat should be made available against CVD paid on imports of capital equipment. |
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