Business Today's special correspondent Taslima Khan spoke to Managing Director and CEO of YES Bank Ltd Rana Kapoor on his expectations from the Budget. Excerpts:
Q. Given the current challenges, what, in your opinion, would make for a good budget? What measures or proposals would you like to see?
A. To me, the Union Budget this year should possess multiple agenda. First, on the growth front, it should serve as a trigger to kick-start the investment cycle in the economy . While this has been the government's focus in the last few months as it announced a flurry of economic reforms, the budget allows the government to move a step ahead. It offers an opportunity to the government to signal a stable tax environment especially with respect to foreign investment. This would help alleviate concerns and instill confidence among investors. Additionally, the government needs to send a strong message for facilitation of investment intentions by expressing readiness to implement key pending reforms such as the Land Acquisition Bill and Mines and Minerals Bill. And in the financial sector, the Pension and Insurance bills, among others. It must also allow the newly appointed Cabinet Committee on Investments to take a greater role in expediting pending regulatory clearances.
Second, the pace of domestic savings has shrunk from a high of 36.8 per cent in FY08 to 30.8 per cent in FY12 and it is likely to decline further. This has been led by a decline in savings of the household sector and financial savings, in particular. As such, the budget should aim to incentivise financial savings, by reducing the lock-in period of bank deposits eligible for a tax rebate (from five to three years), increasing the threshold of mandatory TDS (tax deducted at source) on interest income, and broadening the Rajiv Gandhi Equity Saving Scheme, among other measures. In addition, the budget can also look at steps to dissuade physical savings, especially in gold, and thereby lower the pressure on the unsustainable current account deficit. The deficit was at 4.7 per cent of GDP (Gross Domestic Product) during the April-September 2012 period of FY13.
Last and perhaps most critical, the government needs to reinforce its commitment towards fiscal consolidation by announcing a lower, yet credible, fiscal deficit target for FY14. To be able to prune the fiscal deficit target, the finance minister can either increase revenue or reduce expenditure. While the options to increase revenue remain limited in a slowing economy, the focus will, and should be on expenditure management. Pruning of populist subsidies and reorientation of spending towards productive capital spending will provide a much-needed fillip to private investments. The budget should make some big-ticket announcements such as outlining the framework for the GST (Goods and Services Tax) and DTC (Direct Taxes Code), and their time-bound implementation.
Q. Given the constraints the government faces in raising revenue, do you see a case to increase income tax rates on the rich?
A. I don't think that the finance minister will increase income tax on the rich or super-rich. The main agenda for this budget is to ensure continuity and acceleration of the investment cycle. Increasing tax on the rich will reduce enterprise and entrepreneurship. In my opinion, he will aim to increase the tax net while avoiding tax leakages.
Q. If the budget does not meet expectations, do you fear that business sentiment would once again dip?
A. While it is possible, it is extremely unlikely in my opinion. Over the last five months, the government has displayed strong resolve in reviving sentiment through tough and prudent economic measures such as: