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February 26, 1999
The Rediff Business Interview/ S S Kohli
'Focus will be on infrastructure, exports, capital markets and NPAs'
In this final pre-Budget interview, Surinder Singh Kohli, chairman and managing director of Punjab and Sind Bank, tells Aru Srivastava that the century's final Finance Bill will be a "tough act".
There is a talk that the Budget will be "tough", "harsh", etc. Is the economic backdrop against which this Budget will be presented any different from the previous ones?
The backdrop is a tough one. In my view, there are three main problems: one, the trade deficit has gone up. The fiscal deficit has also gone up; two, the industrial recession has not let up; and three, the banks are loaded with huge non-performing assets that will threaten their viability.
Do you think the Budget will be able to address these issues?
The Budget will stress on infrastructure. The State Bank of India had issued Resurgent India Bonds worth $ 4.2 billion for the infrastructure sector.
However, this money has not reached the infrastructure sector as yet. So we should see an inflow of funds into this sector which will help revive the core industry. As you may know, core industries like steel, cement, etc, have not done well. I am sure the government will take measures to improve the performance of the core sectors.
What we will also see in this Budget is the issue of the non-performing assets of the banks being addressed through some legal reforms. The level of NPAs has reached Rs 450 billion which is a very large figure. The government will try and address this issue through better compliance procedures, reforms for an early recovery system wherein there are more number of recovery officers and the time taken by the Debt Redressal Tribunals becomes less.
The legal framework will be amended to make debt recovery faster so that the same money can be used for productive purposes.
The Economic Survey had called for reengineering the government. Do you think the government can summon enough will to cut its own size and expenditure?
Well, they are talking about a cap on government borrowings, so let us see.
What changes do you anticipate in direct taxes and indirect taxes?
I don't think we can expect any further relaxation in the case of direct taxes. In case of excise duty we may see some rationalisation.
Without raising tax rates, can the government boost its revenues?
Yes, it can, by enabling industrial recovery that will happen when the infrastructure sector gets a boost. Revenues will also go up when the government takes concrete steps to boost export growth. I think this Budget will see some major initiatives for export growth, especially for food processing and agri-exports. A lowering of customs duty on capital goods will be an indirect way to improve export performance.
What will be the impact of this Budget on inflation, value of the rupee and interest rates?
I don't anticipate the interest rates to go up in the short-term. If the government addresses the problem of its borrowings seriously, then we will not see a rise in interest rates. Inflation will also be maintained at controllable levels. As regards the value of the rupee, I expect it to hold steady for at least three to four months at around Rs 42.50 per dollar and then may be it will depreciate to Rs 43 per dollar.
Will the Budget have anything for the capital markets?
Definitely. I think this Budget will surely try to stimulate the capital market. We may see the re-introduction of the section 88C wherein 50 per cent of the money put into new issues is exempt from a person's income.
We may also see dividend income being exempted from tax and also dividends from mutual funds being exempted from tax. In the first nine months of 1998, only 25 new issues happened, raising only Rs 1.32 billion. This is pitiful.
It also shows the people's preference for debt. So, I think the Budget will try and get the small investor back into the market so that the capital market picks up again.
The Budget will be a tough act. But the government will boost growth through emphasis on the infrastructure sector and exports.
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