Seshasayee adds that the peak customs duty may be cut to 10 per cent and 7.5 per cent in some cases. According to him, it will be difficult for the Finance minister to hike service tax and he opines that the collective duty should not be more than 15 per cent.
CII is not expecting the FM to touch upon FBT and they believe that the excise should be reduced from 16 per cent to 14 per cent. They do not see the growth slowing down at ground level. They are expecting some reduction in excise duty rates.
Excerpts from CNBC-TV18's exclusive interview with R Seshasayee:
Do you think the 10 per cent surcharge will go?
I would expect it to go - whether it would happen, I can't say. It is more easy to say what I would like to see - yes, I would like to see it go.
Have you built a persuasive case to the FM to lower the tax points for companies?
They must look at the context in which this Budget is been presented; first of course, we have this issue that whilst we have tremendous amount of underpinning of growth, we also have inflation which we need to recon with and therefore on that the issues are quite clear. Therefore one would expect to see some softening of duties because that's a response to the situational inflation.
On the issues to direct tax rates coming down, I think there is still a very strong case for stepping up both savings and investments to keep this momentum up and this is not going to happen merely by looking at FDI. We are moving from a consumption led growth to an investments led growth now and I think therefore, this is a strong case anyway for having larger degree of corporate savings and indeed even household savings and I think that's another area which needs to be addressed now.
Because of those inflation concerns, there have been worries that the Finance Minister might make some insulated moves for specific sectors particularly from the commodity universe. Do you expect to see some of that happen in the Budget?
There is quite clearly a case for looking at some specific areas where we need to address a supply side situation and in order to do that there would have to be some softening in terms of duties in order to improve the supplies and that's going to be unavoidable. This is perhaps going to hurt in the short-term but in the overall interest of keeping inflation down and keeping growth up it will be a good thing.
Could you flesh that out a bit in what form do you think it might take?
Broadly, in the secular fashion, I think we are going to see some reduction in the peak duty levels and in so doing the 12.5 per cent might come to 10 per cent in some cases and I won't be surprised if it goes down all the way to 7.5 per cent in some cases. If that is required in order to improve the supply side position and that could well be in the case of some commodities.
I think, it is certainly right for the economy, may not be so good for a particular sector but I believe in the competitiveness of our industry and sooner than later we will be able to face the situation.
What about the flip side - excise duty because custom duty cuts are not good for companies but excise duty cuts are positive. Do you expect him to cut excise as well in some sectors?
The CII has said that we should move towards a rate, which the earlier Kelker Committee had talked about 20 per cent, which is a composite GST (Goods and Services Tax) to 15 per cent and I think that level of presumption is quite adequate both in terms of what the country needs in terms of resources for plan purposes as well as what is necessary to keep the competitiveness up. And from that point of view I won't be surprised if there is some reduction in excise duty rates from the 16 per cent, which seem to have been set as a benchmark and that benchmark might well get disturbed to something lower than that maybe 14 per cent.
Do you expect to hear the Finance Minister talk about controversial issues like the FBT?
We have been at it for a long time and we will continue to have another round after the Budget is over to say how very disappointed we are that FBT (Fringe Benefit Tax) has not been touched.
What about service tax - some people believe this time around inflation may not go from 12 per cent to 14 per cent. What's your feeling?
In the context of inflation, its going to be difficult for any Finance Minister to be increasing the rate particularly in services because a lot of that is now moving from upper part of pyramid to the lower part of the pyramid and therefore its going to be quite difficult to touch that.
But I would like to say that even on a secular basis that should not be touched; we are canvassing for the excise duty to come down to a level where the collective duty both on sales tax and excise duty together should not be more then 15 per cent, so there is no case for taking it up.
Is corporate India worried that growth will slow down after three good years? Do you think there is a fear or a concern that growth might be slowing down because of interest rates going up?
The happy news is that I don't see growth slowing down at the ground level despite the fact that the EMI has moved up because of interest rate movement. But let's face it, the last three years growth has come up largely because of installment credit being much less expensive and therefore has triggered consumption and people have bet their future earnings on the basis of EMI and there's been a dis-saving and which has resulted in this huge demand growth.
What is a tipping point; is very difficult to say whether this tipping point has been reached or would it reach another 0.5 per cent more, but the happy news is that I don't see the growth taking a major hit because EMI has moved up. Let's take my own industry, commercial vehicles industry, of course there has been a little set back, some holding back for a few weeks but I don't see the ground level demand in terms of replacement requirement getting affected as yet. The earnings are quite good, so we still see a lot of fundamentals being right.
Is that a situation you expect will percolate across industries because just to talk about your own industry the situation is probably different for the passenger vehicles and two-wheeler manufacturers as well?
As I said, I have not heard and I have been keeping a fairly close tab on that. I have not heard as yet major concerns coming up. As I said, there is some holding back in some pockets, there is a certain degree of worries in terms of whether they can afford it but overall the demand is still good and if we don't escalate the interest rates any further then I think it will settle down at current situation. But if the tipping point is just another 0.5 per cent away, 1 per cent away then it could be a different story altogether.
What is your own gut feeling of when it starts to actually hurt the growth curve? Has it already arrived? Will it manifest itself with a lag? Is it 0.5 per cent away? What's your gut feeling?
My gut feeling is that because of the fact that today the industry is getting far more efficient both in terms of capital usage and in terms of labour usage, despite of course the commodity price increase, the overall profitability is going northwards, not southwards.
When I say profitability, I am not talking about gross operating margins. You will find that taking a hit but the operating leverage being what it is, because of the expansion, there is an overall improvement. If interest today is less of a burden than it was about a year ago, five years ago, ten years ago and therefore from corporate viewpoint that's going to hurt all that, much as of now, the tipping point is slightly further away.
The issue is again maybe at one end of the spectrum is the property situation where there could be an issue coming up and the tipping point maybe a little more reachable there in the property followed by perhaps passenger cars and then followed by more capital good oriented investments.For more on markets & business, log on to www.moneycontrol.com.
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