In a way, are you saying no to a fiscal stimulus?
I am not saying no to a fiscal stimulus. Whatever the government can afford to do, should be done. The government shouldn't go beyond what it can afford to.
So, are you saying that the government should maintain fiscal deficit at 3.4 per cent of GDP as was given in the interim Budget for FY20? But, the CII’s 100-day agenda for the government is to cut the personal income tax rate for lower strata. How are these two possible?
We've suggested the government increases the threshold for income tax exemption to Rs 5 lakh. But, we are also saying that exemptions should be removed. So, the two things are possible.
But in the interim Budget, it was announced that tax credits would be given till Rs 5 lakh of taxable income, which means that income of even over Rs 5 lakh could be tax-free…
We are saying that the threshold should be increased. We are also saying that if tax rates are reduced, reduce exemptions as well. On the corporate side, I definitely feel that a reduction in taxes, as well as tax exemptions, is required. Our calculations show that if we remove all exemptions, we can be revenue neutral at an 18 per cent tax rate. We want a revenue-neutral kind of stimulus.
Your agenda paper also talks about multiple taxes on equity. What is your suggestion in this regard?
First, you can't grow the economy on debt. We already have too high a debt in our economy. On the other hand, equity is taxed at a very high rate -- whether its dividend tax, tax before dividend, tax after dividend, tax in the hands of the receiver, capital gains tax, and so on. If the tax on investments made is higher than that on one's salary, no one will undertake the risk of being an entrepreneur. If investments are not made, how will assets be created?
So, what can be done?
Taxes on investments, including the taxes on dividend, as well as that on capital gains, should ideally be eliminated, or at least reduced substantially.
In your earlier suggestion, you wanted exemptions to go and tax rates to come down so that these become revenue neutral. But in this case, how will the government make it revenue neutral?
This may not make it revenue neutral. It’s a tough call, but that’s a finance minister's job.
The government could not clear the land acquisition Bill in its earlier stint. Do you think it should make an attempt now, with a bigger majority in Parliament?
I don't think land acquisition is still easy, even for land which has been acquired by the government. It would be difficult to acquire land with the UPA’s land Bill.
What about the securities transaction tax?
That's okay. I think the tax on investments is more important, right now.
There are speculations that the inheritance tax could be restored in the Budget. What’s your take on the issue?
We have to see whether it will discourage investments or not. It shouldn't be restored at this stage of the economy when we want it to grow at 10 per cent a year. It’s a different story in western economies where they are happy with 2-3 per cent growth, but it won't be helpful for us. This kind of taxes will discourage entrepreneurs.
When do you say 10 per cent economic growth a year, what is your timeline for achieving it? India only once had 10 per cent growth?
It is important to have a target like that. It’s an aspirational target and we have to reach it.
The GST Council is likely to meet next week for the first time under the new finance minister. What are your suggestions for the meeting to spur the economy?
There has been some simplification in rules every time the GST Council has met. That should continue. It’s not possible to get one tax, but we need to keep on improving it. Reducing the number of tax rates and including items like oil in the tax regime should be done. At least, the number of goods in the 28 per cent bracket should be reduced.
The RBI has reduced the repo rate for the third successive time. However, in your suggestions to the government, you have talked about restructuring the interest rate structure. How feasible is this?
It’s a very tough political decision because of savings accounts. Banks are competing with small savings accounts. If banks can't get deposits at a low rate, how will they lend at a low rate? Inflation has come down dramatically, but savings rates haven't, so the real interest rate is very high.
But, India does not have a social safety net and people do require high returns from small savings. What kind of restructuring do you want, since most of the small savings schemes are now market-linked?
When inflation comes down, typically interest rates all across the board should come down. They are determining the bank deposit rates.
You come from the manufacturing sector, but the Make in India programme hasn't made much headway. Why do you think has happened?
Make in India or anywhere is a matter of quality, cost and delivery (QCD). If an investor gets these three better than his competitor, he will make it here. Foreign investors are always looking at multiple options and will choose the nation with the best QCD factor in a sustained way. Long-term policies of the government also matter. If you say, I have a carbon policy for the next 20 years without a change, people will invest. But if you have something like an electric vehicle policy, which we don't know the reasons for, investors will be unsure to move in fearing what may come next. They may feel it will change after years because it won't reach the carbon requirements.
But reforms such as the introduction of fixed-term employment have been carried out in labour-intensive sectors like textiles and leather. Have things not improved even after that?
But the QCD hasn't improved. That's why we have suggested appointing czars for specific sectors like tourism and textiles They will go over the efficiency of the value chain. We export machinery and cotton to Bangladesh, and they make shirts cheaper than us.
What about services exports?
Sectors other than traditional Information technology should come into focus like medical tourism. The services depend on skill training of people and the emphasis on that should continue.