Populism rarely intersects good economics. Finance minister Palaniappan Chidambaram recently hit this sweet spot when he hinted at a possible reduction in personal taxation rates if there is evidence of "greater tax compliance". So, will the fm finally deliver in the next Budget? Not really, feels Amitabh Singh, Partner, Ernst & Young, if compliance were to be the only criteria. "One year's track record can't be a basis for tax cuts. However, I am optimistic that the 10 per cent surcharge, as well as the education cess of 2 per cent, will be reviewed." Importantly, tinkering with personal taxes, which accounts for around a quarter of the total tax receipts, will not be an easy task. Why? Though the buoyancy in tax collections, at over the 30 per cent mark, provides the stimulus, the terms of the Fiscal Responsibility Act has a sobering effect.

What will be the impact of a review of personal income tax rates? "Economic activity," says Soumitra Choudhury, Member, Prime Minister's Economic Advisory Council. "The principal impact of lower personal taxes will be greater economic activity on two counts. First, consumption will rise. Secondly, it will drive entrepreneurship." Growth on the back of lower taxes is a prescription that, evidently, many do not agree with. Asks Subir Gokarn, Chief Economist, CRISIL: "Is the tax buoyancy because of structural changes or the result of upbeat industrial conditions? If it is on account of the industrial environment, it will disappear if any reversal happens in future." These fears have a basis, for a good part of the rise in income tax collections can be attributed to the rise in income levels of the salaried class, who have negligible room for tax concealment. Finance Ministry officials argue that the deepening of the tax base-uncovering cases where there is suppression of income-is also significant. To what extent, however, remains to be seen. The question then is, how reasonable are our tax rates? There are differing views on this count. Says Choudhury: "We are on the higher side of the moderate level. The tax rates in Europe and the us are more towards the 25 per cent mark." Gokarn is more accommodating. "Our personal tax rates (30 per cent plus various surcharges in the highest bracket) are by and large reasonable compared to international rates," he says.

Besides the reasonability of the tax rates, improvement in compliance depends on the cost of non-compliance-what does it cost to conceal income? There are others who argue that reduction in taxes is not healthy in more senses than one. "Do we have a social safety net in place or sufficient buffer to spend money on social health and infrastructure?" asks Ananda Bhoumik, Senior Director at Fitch Ratings. In the absence of a robust system, the incremental savings are not likely to be channelised where they ought to be.

That a tax cut will generate additional economic activity is fairly certain. Which sectors will benefit and to what extent remains the question.

INSTAN TIP
The fortnight's burning question.

Will the government's plan for a real estate regulator succeed in curbing artificially high housing prices?

Maybe. Harshavardhan Neotia, Chairman, Ambuja Realty

I am not clear on the role of the regulator. There has to be more clarity on how the regulator will function and how it will regulate such a fragmented industry like real estate. It is premature to say anything. At this point, I have more questions than answers.

Yes. Anshuman Magazine, Managing Director, CB Richard Ellis, South Asia

The independent regulator will bring about transparency and promote efficiency in the industry. This will lead to improvement in quality standards and reduction in prices, thus, helping the retail buyer.

Yes. Rajiv Sabharwal, Senior General Manager, ICICI Bank

If the regulator can come up with pragmatic policies, it will ensure increased supply of real estate stock, effective zoning laws and also make real estate deals completely transparent. These, in turn, will nudge the market towards more realistic pricing based on demand and supply.

-Compiled by Shaleen Agrawal

Q&A
"Scale Here is Mind-boggling"

Mark Townsend, vice president (Server Product Technologies), Oracle, was in India recently. He spoke to BT's Aman Malik on how the Indian market is evolving.

Oracle has said it is quite bullish on India? What exactly do you mean by that?

India is a very large economy and is growing very fast. This means that everything is happening very quickly. We have seen growth in all the major areas-telecommunications, banking, insurance and financial services, government, retail, manufacturing and transport.

What challenges do you face here?

On an average, information-critical databases are doubling in size every two years. This brings in challenges of how to efficiently manage so much data and how to store it without continuing to pay vast amounts of money for the storage. The scale here is also mind-boggling. The number of transactions per minute is in the tens of thousands. The sheer scale poses challenges that we do not encounter elsewhere.

What new products can we expect and how are they likely to impact markets like India?

Our endeavour is to develop such software that can manage change and do so online, in the most effective manner possible. We are now moving into 11g, that is due for release in 2007, where databases will be self-diagnostic, that is, they will themselves be able to describe problems and suggest ways of sorting them out.

It's Adobe vs Microsoft Now

Adobe's Narayen: Relying on Indian R&D

Fifteen years ago, adobe developed the portable display format (PDF) that allowed people to create and share documents across the web and has, since inception, enjoyed a dominant share in this market. It now faces competition from Microsoft, which is developing its own standard, XPS, and bundling it with Vista, its soon-to-be-released operating system. Shantanu Narayen, President and coo, Adobe, appears unruffled by the looming threat. "The creative community looks at Adobe as the company that has met its needs for many decades; we have created markets (Postscript and Photoshop for example) and that is really our focus," he says. In line with this, Adobe is throwing its weight behind its new platform called Apollo, which aims to make rich internet applications available on an array of devices on which it is not yet supported. "Apollo is about taking the best of Flash, PDF and html and creating the next-gen application that combines web and desktop and works on a range of devices," says Narayen, adding: "India is absolutely strategic from an R&D point of view. Components for pretty much every product line are developed at our India R&D centres and we recently announced plans to invest $200 million (Rs 900 crore) over the next five years here." Incidentally, Adobe is perhaps the first major tech company to headquarter an entire product division (Print and Classic Publishing) out of India. "They have taken ownership of products. We have shipped two products-Captivate and Contribute-from the Bangalore campus in October," says Narayen.

-Rahul Sachitanand

IN THE SHADOW OF THE RED FLAG

The information technology (it) sector in West Bengal is showing signs of jitters. "We don't think there is any case for a trade union in the IT sector," says Bikram Dasgupta, Chairman, Globsyn Technologies and spokesman for Bengal Information Technology Entrepreneurs Syndicate (BITES), which has brought together 90 IT firms to take up the issue with the government. The Big Boys like IBM, PwC, CTS and Wipro are maintaining a silence on the issue, but their concern is evident from their presence at Bengal Chamber of Commerce-BITES meeting held a couple of days ago to discuss the issue.

But of greater concern is the Left's plans of expanding its sphere of influence to other states. Benoy Konar, a CPI(M) Central Committee member, says: "If the association is limited to the state, it can trigger a flight of capital. So the employees' body should gain a foothold in IT and ITES sectors in other states as well to give Bengal a level-playing field."

But redemption may be at hand. Former state Chief Minister Jyoti Basu has intervened in the debate and asked the pro- and anti-union sections in his party to find an amicable solution to the problem. The IT industry, meanwhile, waits in anticipation.

-Ritwik Mukherjee