What are the three things you wish for from the Budget?
I would increase the salaries of judges and government officers to bring them in line with those elsewhere. This will help attract better talent and retain existing talent. The year 1937 is a good reference point (before wartime inflation). In real terms, an income-tax officer earns less than 8% of what he earned in 1937, as also much less than tax officers in other countries. The gap widens at higher levels.
In 1937, a judge of the Federal Court of India earned more than any English judge. In real terms, a Supreme Court judge’s salary now is 3% of that of a Federal Court judge then. Against an Indian judge’s salary today of less than Rs10 lakh, a US Supreme Court judge earns more than $200,000 (Rs79.6 lakh); the Lord Chief Justice of England earns £205,000 (Rs1.61 crore). Similar gaps exist in other areas.
Russell Parera, CEO, KPMG in India
Secondly, there should be spending on the soft infrastructure, such as education, since this is as important as the hard infrastructure. Education is a major area of concern for the future, and it is critical to allow private investment into the education sector.
It is also important to spend money to ensure the efficient use of the existing infrastructure.
I would rationalize the tax system so that it is indifferent as between economic structures. An individual (or a group of individuals) should be able to use a sole proprietorship, or a limited company, or a partnership firm, or a trust, or a collective investment scheme of some sort or the other, for the purpose of owning assets and/or earning income (or suffering losses, as sometimes happens), without attracting either a higher tax or a lower tax. A lot of wasteful tax planning is centred around avoiding taxes on economic structures. For instance, the income-tax system should be so designed that by the time any income reaches an individual, the amount of tax payable or already paid on that income closely approximates the tax payable by him based on his ability to pay.
The tax should not depend upon the economic structure used by him, since economic structures are used for efficient pooling and control of resources, which benefits the economy as a whole. There should be no penalties on such efficiency, nor should there be any scope for structure arbitrage.
If you could end one thing, what would it be?
There should be an end to cross-subsidies. Business consumers subsidize individual consumers through higher rates for utilities such as water, gas, electricity. Farmers subsidize industry by having their land expropriated at throwaway prices. Petrol companies subsidize car owners and others. All subsidies should be through the general revenues.
What would be the one thing you would want in the Budget?
There is need to bring in a vibrant corporate debt market. For this, regulations and taxes will have to be reformed. Stamp duties, in particular, need rationalization. Also, the present tax incentives relating to infrastructure are profit-related and hence focus on equity investment in infrastructure. The incentives should also cover debt investment into infrastructure, since a major portion of the funding from infrastructure will come from debt.
What is the one thing you don’t want changed?
The?steady?progress?towards?the?opening?up of the Indian economy.
Which budget disappointed you the most? Why?
No particular budget, since every reformist finance minister has to compromise with inescapable political realities.
One proposal you think is shot down in every budget, but shouldn’t be?
Living within one’s means. Deficit financing is fine if it is used for productive capital expenditure, or for genuine exigencies. It is difficult to convince oneself that all expenditure in excess of revenue is necessary and/or beneficial.
What would you consider to be inclusive growth?
Growth should be like a rising tide which raises all boats, with small boats rising along with the big ones. That, in my view, would be inclusive growth.
Russell Parera is CEO, KPMG in India
By A Staff Writer