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February 25, 1999
The Rediff Business Interview/ Tarun Das
'Yashwant Sinha is on a tough batting wicket'
Director General of the Confederation of Indian Industry, Tarun Das spoke to Aru Srivastava, soon after the Economic Survey was presented to Parliament.
What is the economic backdrop against which this Budget will be delivered?
I would say the economic backdrop is a particularly difficult one. In fact, it is probably the most difficult economic balance-sheet that we have seen in several years. We have high fiscal deficit, low industry growth, low investment, low exports, high subsidies, etc. I think the finance minister is on a tough batting wicket.
What do you think will the Budget do to address these issues?
The Budget is not the be-all and end-all tool through which the government can address these issues. It is an important tool which, if used effectively, can address some issues directly, and some indirectly.
For example, on the export front, the Budget cannot do anything directly; but it can help the exports if, through a control in government spending, the interest rates come down. This, in turn, will lead to a lowering of interest rates which will add to the competitiveness of our exports worldwide.
Directly, I think the Budget can address the issue of government spending and borrowing, which if reduced will leave a lot more money for the business community.
Do you think the government will address this issue?
Well, a beginning seems to have been made in terms of the statement in the Economic Survey, which talks about the downsizing of the government. In fact, this Budget may be a new one in terms of giving direction to all the Budgets to follow.
What changes do you anticipate in the direct taxes and indirect taxes?
I don't anticipate much of a change in the direct taxes. We are already at low levels of tax and cannot expect any further reductions. However, I think an effort will be made to get more and more people into the tax net by extending the service tax to more businesses, retailers, professionals, etc.
As regards indirect taxes, I see the two and three per cent special import duty to go. It was a time-bound thing, which had to be finished in 1999, and I think that the government will keep its promise. This itself will lower the import duty by five per cent and make us more comparable to world standards of custom duty.
The four per cent special additional duty will continue. In case of the excise duty, we will see some rationalisation. Which means that in some sectors, it may go up and in some, it may come down.
If the government doesn't increase direct or indirect taxes, how will it boost its revenues?
Growth. Industrial growth will lead to better revenues. The government has already seen that high taxes do not boost revenue. It is high industrial growth that boosts revenues.
What does the industry need from this Budget?
Industry needs excise duty cuts. It needs boost in investment in key sectors like power, infrastructure, capital goods and construction.
So will industry get this boost?
We are expecting something for specific sectors of industry. Special packages to boost investment and growth are being mentioned and we feel they will definitely be there to boost growth.
What will be the impact of this Budget on inflation, value of the rupee and interest rates?
That depends on what the Budget is really like. If the government seriously addresses its spending and borrowing, then in April, when the RBI announces its credit policy, we may even see a fall in interest rates.
The value of the rupee needs to be adjusted downwards. The rupee is over-rated at the moment and needs to depreciate. I think it should go down to Rs 43.50 per dollar.
As regards inflation, the wholesale price index seems under control but what needs to be addressed is the consumer price index, the CPI that you and I face when we go to the market. It is the retailers who are buying goods at the WPI and selling them at the CPI. This issue needs to be addressed. In a way, the excise duty hike can address this issue.
Will the Budget have anything for the capital markets?
The prime minister's special taskforce has stated that there will definitely be a new tax policy for venture capital funds so as to spur growth. I think the emphasis will be on how to make the raising of finance easier for business as a whole.
What, in fine, could be the form of Budget?
It will be a holding exercise. The government will try to stimulate growth in key sectors of the economy.
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