Business Today

Budget 2013: Lift caps on FDI to revive growth, says Servolve Director George Mathew

Servolve Director George Mathew says deregulation and lifting caps on most FDI is the one action that will provide a solution to revive the investment cycle and growth momentum.

Anilesh Mahajan        Last Updated: February 4, 2013  | 12:43 IST

Business Today's Anilesh Mahajan spoke to Servolve Director George Mathew about his expectations from the upcoming Budget .

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. Deregulation and lifting caps on most foreign direct investment is the one action that will provide a solution to revive the investment cycle and growth momentum, providing a welcome signal to investors. This has a spin-off effect that will put the economy on a high growth trajectory and address the current account deficit and fiscal deficit, in turn. P. Chidambaram's visiting Hong Kong, Singapore, London and Frankfurt to meet investors has helped increase the feelgood factor for India.

Q. Given the constraints the government faces in raising revenue, do you see a case to increase income tax rates on the rich?
A. A higher growth trajectory will address the revenue shortage the government faces with tax collections increasing, while tax rates remain at current rates. The medium-term aim should be to cut taxes for companies, especially start-ups. Another aspect to pay attention to is cutting and eventually eliminating the Dividend Distribution Tax (DTT). This tax makes participation in the equity market less attractive by double taxing income (at company profit and dividend level). India's equity market needs a massive expansion of base, and elimination of DTT will be a step in that direction .

The very idea of defining "rich" in this context is the start of an exercise in ostracising the successful. It makes more sense to define "poor" so that a helping hand can be provided, and I'm supportive of the direct cash transfer that the government is implementing for those struggling to meet essentials.

Q. If the budget does not meet expectations, do you fear that business sentiment would once again dip? What is your worst fear?
A. The worst fear I have is of taxes being increased on the "rich". It will have a very negative impact overall, with further wealth being transferred out of India and, even worse, wealth creators setting up abroad, in more tax friendly jurisdictions.

Q. Specific to sectors such as infrastructure, power, gas, taxation, social development, what could the current budget do to improve conditions?
A. Rather than sectors, allow me to speak of geographies. It is pertinent for India to build closer relations with the ASEAN economic block, and the major countries there. Indonesia is seeing massive growth (FDI into Indonesia was up 26 per cent in 2012), and shares a cultural similarity to India, steeped in history and the manner of doing business, with emphasis on relationships. Singapore has a sizable Indian community, a good portion of them are first-generation businesspeople from India, who are entrepreneurial. Given an opportunity, they can transform India's reach into this part of the world.

Consistently implementing the double taxation avoidance agreement and further protocols signed in 2005 with Singapore will open a strong avenue for foreign investment to pour into India. Singapore is rapidly shaping up to be a reputable regional financial hub.

Q. Which budget, in the recent past, do you remember as having been a good one?
A. Not so recent - the budget of 2002/03 by Yashwant Sinha for the deregulation it introduced in the telecommunications and energy industries. This, along with the thrust on infrastructure by funding the National Highways Authority, was a major step in putting India on the growth path.

(Servolve is a Singapore-based tax and management consultancy that works on international transactions, and assists companies in setting up businesses in Singapore, India and South and South East Asia.)

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