INCREASE EXPENDABLE INCOME OF INDIVIDUAL: SAJAN POOVAYYA

FICCI State Chairman hopes for better stimulus package

India's prominent economic policymaker and Deputy Chairman of the Planning Commission Montek Singh Ahluwalia once said: "In Indian politics, there is a strong consensus for weak reforms."
Now that the country is waiting for the Union budget to be presented by the Finance Minister on Feb.26, some questions on the viability of budget, which has ceased to be an economic policy years ago and the sops provided in it, arise such as will there be a push for reforms such as greater infrastructure development and foreign investment in key sectors? Will the sops set the wheels of economy rolling? And how will the average Indian be benefitted by the budget, either Central, State or local?
When Star of Mysore spoke to Sajan Poovayya, Chairman, Federation of Indian Chambers of Commerce & Industry (FICCI), Karnataka State Council, he spoke freely on the matters concerning the impact of budget on various sectors.
Question: The last time around, it was pressure from the Left parties that hamstrung what could have been a progressive budget. This time it seems that Trinamool and DMK are putting pressure on Dr. Manmohan Singh government. So will it be a 'soft budget' with industry and economic growth losing out?
Sajan Poovayya (SP): I am not going to say that it will be a soft budget. The pressure on the government is an internal political angle which is a bit lame when seen from a national economic perspective. It is possible to stimulate Indian eco-nomy through government-initiated stimulus packages as provided in 2008-2009 by the Central government. This is one of the reasons the Indian economy is suffering less of an impact in the context of global economic recession.
Question: We are still not out of recession yet, in spite of optimistic forecasts by the captains of Indian industry? What kind of budgetary sops do you envisage to push the country into a growth mode?
SP: We do not need large scale budgetary sops as such to push the country forward in terms of economy. Instead. Prices of commodities are going up and in order to counter the price rise, the personal income should be more. When there is more money in hands, people spend more thus helping industries. This can be possible if the Income Tax payable by an individual is less.
The Central Budget should bring about a paradigm change on the aspect of personal taxation. Although the personal taxation regime in our country is not one of the worst in the world, it is certainly not one amongst the best.
From a Karnataka perspective, one would wish for a special incentive package for the State to ensure that agrarian and infrastructural development in the State occurs on a mission mode and further that Bangalore becomes an investment gateway for Karnataka. Karnataka contributes 11% of India’s income tax and 7% of the country’s corporate taxes. Bangalore takes the second position amongst all cities in the country, in terms of personal income tax contribution. The city contributed in excess of Rs. 11,500 crores as personal income tax during the last fiscal.
Macro-level sops too stimulate demand which in turn creates more production. Decreasing Income Tax rate too will stimulate the market. One of the best methods to grow the economy is to provide for a matrix which will incentivize production.
Question: Tax holidays... Can you be specific about the sectors to which a tax holiday will mean a better growth?
SP: First of all, we don't need a general tax holiday. However, the budget should extend the tax holiday benefits provided for Export Oriented Units like Software Technology Parks of India (STPIs) for a few more years. Specific sectors such as oil and natural gas should be conferred tax holiday benefits under Section 80(1)B.
Textile industry, aerospace are the sectors in immediate need of tax exemption. The import duty on textiles should be reduced in order to revive the dying industry. Reduction in taxation of aviation fuel and service tax exemption for 1st class air tickets will save the aviation industry. Banks must come forward to provide credit to such industries in peril. If not a tax holiday, at least short term reduction is needed.
The budget proposals should not only target expansion of agrarian production bases, but also provide for a technological revolution in the agrarian sector such that the efficiencies in agricultural production can be enhanced. This can be done if the farmers are provided food secutiry by means of techonolgy and less acreage. The farmers should be able to produce double the previous yield in the same one acre of land.
And the best usage of technology in farming is the introduction of cold chains which will prevent the agriculture produce from rotting thus strengthening agri infrastructure.
Question: Affordable housing is still a dream for an average Indian in spite of the hoopla by various banks with their housing loan schemes. Will this budget address this issue.
SP:Housing is a critical issue in India. Decent housing is still beyond the reach of the average Indian. The budget should therefore strengthen fiscal incentives for investment into residential properties. Such incentives could be in the form of reduction of interest on housing loans procured for the acquisition of the first housing property; deduction under Section 80(c) on loan repayments etc. Real estate development companies should also be encouraged through fiscal incentives to construct small and affordable dwelling units and stamp duties must be rationalized. Excise duty on cement should be reduced so as to incentivize further construction in the country.
Building houses at a cost of Rs. 30-40 lakh is not affordable to the average Indian and companies giving such assurances need no incentives, but companies promising and building houses at a cost of Rs. 8-10 lakh must be provided with low interest rates on materials and costs.
Star of Mysore (SOM): Housing will be affordable only if sectors like cement, iron, steel, renewable energy are given substantial benefits. Merely cutting down interest on housing loans will not solve the problem. Do you think this will happen at all?
Sajan Poovayya (SP): I hope so. Giving benefits to sectors related to housing will also increase economic activities as more people will be able to afford housing.
The banks have to increase lending rate and the government has to provide lesser loan interest rate or tax concession to the first residential property of an individual thus enabling housing for all. As I said earlier, those who can afford houses only upto Rs. 10 lakh should be given special status.
SOM: It seems to have become a habit in every budget speech to make the grandiose statement that the ceiling on tax will be again raised. This does not mean a thing unless inflation is curbed. What do you say?
SP: I agree. Curbing inflation is possible through stabilisation of prices which leads to stability of market. Input cost comes down and the prices of basic commodities like food comes down. There should be dual set of taxes — for the average Indian, the taxation and excise duty must be low and for the people in higher economic levels, the taxation should be high.
SOM: Even if the budget does offer sops of various kinds, is there a more insidious bureaucratic hurdle to be crossed? Why are bureaucrats so obdurate?
SP: I disagree. Traditional India has always had problems with stubborn bureaucrats but now the situation has changed for the better. Even though bureaucracy has not yet achieved transparency, it has turned translucent from opaque. Obtaining transparency is still a distant dream. The hurdles can be crossed when the budget process in all levels — from Central to the State government upto local bodies like Mysore & Bangalore City Corporations — becomes participatory. The budget should be structured and formulated such that there is full participation of the public and entrepreneurs.
SOM: If the budget goes ultra soft, will India be 'Bangalored' and countries like China and Philippines rule the roost?
SP: No. India will not change. Indeed it has grown economically despite the population and even with a bad government. India will still grow. It may change but not drastically like in 3-10 years. Even with a soft budget, India will grow as it is ahead of China in technology and offshoring. The expectation is that the economy will grow at nearly 8% in the year 2009-10.
We are at the cusp of recession and recovery. Whilst we wish that our budget processes are more participatory than what they are, we could, at the least, hope that the framers of the Union budget will bear in mind that their actions will have a far-reaching impact in ensuring that our economy moves out of recession completely and that we ride back on a double digit growth-path in the coming years.