Budget Verdict: Focus on most critical sectors of economy12 min read . Updated: 26 Mar 2016, 01:25 AM IST
Finance ministry officials in discussion with Mint's Anil Padmanabhan, CNBC-TV 18's Shereen Bhan and industry representatives
Finance ministry officials in discussion with Mint's Anil Padmanabhan, CNBC-TV 18's Shereen Bhan and industry representatives
A day after the budget was presented, minister of state for finance Jayant Sinha, along with members of the finance ministry including economic affairs secretary Shaktikanta Das, revenue secretary Hasmukh Adhia and department of investment and public asset management, formerly known as the department of disinvestment, secretary Neeraj Gupta spoke at the CNBC-TV 18 Mint Budget Verdict, a gathering of top government officials and business leaders.
The government representatives also took questions from Indian industry representatives, Mint’s Anil Padmanabhan and CNBC-TV 18’s Shereen Bhan.
Padmanabhan: What was the central theme of this budget from your point of view?
Das: The central theme of this budget is that it addresses key challenges which the Indian economy faces. Which is that sector which requires maximum attention? We had monsoon failures in the last two seasons, and the agrarian and the rural sector, they were in distress; so, obviously that required attention.
So, if I have to describe the focus of this budget, it has focused on the most critical sector of our economy today, which needed immediate attention. Having said so, I would also mention that the other critical sectors the investment and the infrastructure sector that also has received a lot of attention in the finance minister’s budget and the government has also given due importance to the agenda of reforms. I think there are many transformative reforms. For example, the transport sector, which I would elaborate a little later. I think they are going to make a huge long-term impact and the impact will be felt in a manner that perhaps we move closer and perhaps exceed 8% growth in the near future.
Bhan: Let me ask you something that has not gone down well. Mr Adhia, what was the rationale behind what you decided to do as far as EPF (employees provident fund) is concerned? What is the clarification with regards to the EPF?
Adhia: Let me explain to you the idea behind the taxation treatment of EPF. Instead of people withdrawing the entire corpus when they retire, we want to encourage them to buy annuity products by which their pension security is ensured. What we are saying is simply this. That up to 40% you can withdraw, take away, you can build a house out of it, you can improve your house when you retire. But the remaining 60% you should put it in annuity products so that you get pension for your life.
Bhan: Why are you taking away flexibility from consumers on how they actually want to utilize that money?
Adhia: We are not taking away the flexibility. Now, we are encouraging people to take pension products so that they are secured. We are using taxation as an instrument of incentivizing that. We are not taking away the liberty. They are well within the rights to withdraw 100%. But it will come with a cost. Taxation as an instrument of some policy. The policy you want to take them to a pension society.
Bhan: You want to take them to a pension society, they don’t like the idea of what you are trying to do.
Adhia: They can have the liberty of selecting the annuity product. They can go from one annuity product to another. Whichever is the best one. Whichever has the better annuity in the market, they can find it.
Bhan: The age bracket for eligibility of withdrawal is increased from 55 to 58 now.
Adhia: 55 is not an age to retire. One should only retire at 58. The government will decide the appropriate age.
Bhan: Is there a possibility of a full roll-back?
Adhia: We won’t like to speculate on that. It’s only the finance minister who will take a call on this at appropriate time.
Bhan: But there is room for some sort of a review?
Rahul Bajaj, chairman, Bajaj Auto Ltd: I don’t think the Indian economy is only affected by retrospective taxation. For this one item we have lost a lot of reputation in India and abroad. I have not understood what you said in the budget. You said, in future you won’t do it. I accept those words. The prime minister and the finance minister, whoever… The case of Vodafone…(despite winning the case in Supreme Court, amendment was brought) What have you done?
Adhia: No.1, yes, they won the case in Supreme Court, but then the Congress government had got the power to put tax retrospectively. That power was used by the government at that time and that amendment was brought. Having inherited this situation, in July 2014 itself, this government had made its position very clear. They said we, as this government, will not get into retrospective amendment in future. But the existing cases for which that notices have gone already, in connection with the retrospective amendment, they will continue to exist and the legal process will take care of it. That was the statement made in July 2014. The same statement the government has repeated this time again.
Now the government has looked at all the options and decided that this is ultimately how far we can go.
Ajay Singh, chairman, SpiceJet Ltd: This budget has increased the excise on ATF (aviation turbine fuel) from 8% to 14%. I just want to understand, why do we continue to treat flying and civil aviation as same products? It is like you have taxed tobacco, you have taxed luxury cars and you have also taxed flights. And what is the logic to that?
Adhia: On the contrary, I can give you a comparison of how much excise duty we are charging on petrol and diesel. On the price of ₹ 45 per litre diesel in Delhi, there is a tax of ₹ 20. It is almost 45-50% of the excise duty. In the civil aviation sector, there is a lot of reduction in the crude oil price and there is definitely a scope for putting more tax there. Why should we not? 8% to 14% is not much.
Just look at the other sectors.
Railways are paying on diesel, road sector is paying on petrol and diesel. It is already too much for them. If there is a scope for putting some duty on the aviation sector, why should we not use that opportunity?
Bhan: Since you are talking about excise duty, over ₹ 54,000 crore is as far as excise collection is concerned. So, that is really where your buoyancy came from as far as taxes are concerned. Will you be able to exercise the same lever on petrol and diesel through the course of this year?
Adhia: We don’t know. It depends on crude oil prices. If they stay where they are, we are going to get the revenue projections, which we have projected. So, we will get ₹ 16.25 trillion. That assumption of revenue is very strong, if we are not expecting any change either upward or downward. If it goes down, we will have a bonanza but if it goes up we may have a little bit of risk.
Atul Punj, chairman, Punj Lloyd group: First of all, I would like to compliment you on this budget. It was very good from our perspective which is the construction sector. Walking the talk is going to be the challenge for everybody now. Currently, a lot of the non-performing assets (NPAs) come from the construction sector or the infrastructure sector, highways, power, etc. A lot of growth is coming in the highways sector because of government initiatives. So the disconnect between the banks and the sector itself is the red flag I would like to raise. But coming to another point, when we talk of budgets, we talk of income expenditure. I had asked then vice-chairman of the Planning Commission in 1999 that India reforms in a crisis and right now there is a crisis so why don’t you bring out administrative reforms. At the time, I quoted to him that (former prime minister) Rajiv Gandhi had said 15 paise of every rupee destined for development actually reaches the project; his son then came up with seven paise. I don’t have any personal knowledge of the numbers. Is enough attention being paid to see what is the cost of delivery of several government programmes because if we can bring the cost of delivery down automatically, the resources needed to fast-track projects become available exponentially?
Jayant Sinha: Let me quickly talk about the social security sector. Certainly, the whole idea of the social security platform, providing statutory backing for Aadhaar is really to prevent the leakage in the system. We have been extremely successful with the PAHAL (requiring the consumer to mandatorily have an Aadhaar number for availing cooking gas subsidy) scheme, which is providing the subsidy directly into people’s bank accounts.
We have reduced payments by 25-30% by putting money directly into bank accounts. Commercial purchase of gas cylinders has gone up by 30% or more because these were being diverted to commercial purposes. If you ask people about their satisfaction levels, the satisfaction level has also gone up. We are clearly seeing from these kinds of programmes that by applying technology, by being single minded and mission oriented, we can make a big difference.
Harishanker Subramaniam, indirect tax leader, EY: On the goods and services tax (GST), even if you’re successful in getting the passage of the Constitutional (Amendment) Bill in the second half of the budget session, the chances are that the preparation time that is required both for the industry and the government, the date could be 1 April. In this backdrop, did we miss an opportunity of probably doing some structural changes in this budget on service tax and excise because that was something that was speculated. Could we have threshold, integrated CENVAT. There has been a fair degree of statutory provision that has come in CENVAT but could we have done better? In CENVAT, one thing that got missed out was that construction-related credits are still denied today. With Make in India as a policy theme, could we have done that in this budget? Did we miss an opportunity of not integrating at least at central GST level and sending a strong signal to the industry and to the political posturing at large?
Adhia: People did suggest that if we cannot implement GST this year, at least let us ensure seamless flow of input tax credit between excise duty and service tax. We thought about it. There are two issues. We must also align the turnover threshold for exemptions in central excise duty and state-level value added taxes (VAT). Today, the central excise exemption threshold is ₹ 1.5 crore, while in most states, the VAT exemption limit for traders is ₹ 10 lakh or ₹ 20 lakh turnover. Some states even have a ₹ 25 lakh threshold. We must bring the central excise exemption limit, too, to these VAT exemption threshold. We thought about it. One decision we have to take is to lower the central excise exemption to the state VAT exemption limit. But it would be too much of a hassle to make many small traders and small and medium enterprises to register for excise duty and let them pay the duty, just for one year, as GST will anyway be coming shortly.
Secondly, we looked at the areas where flow of credit between excise duty and service tax were blocked. The number is staggering. It will cost us ₹ 15,000 crore to give businesses seamless input tax credit flow between excise duty and service tax. However, the central government will start getting VAT revenue only when GST comes into being. Since we have to maintain our fiscal deficit target for this fiscal, we decided to defer the idea of giving seamless credit flow for a year. (Centre gets to tax central GST—on retail sales under the new regime. Now, centre levies excise duty on production while states levy VAT on sales.)
Neeraj Kakkar, CEO, Hector Beverages: Because of stressed assets and tighter bank lending norms, lending to SMEs has declined considerably in the last six months. What are your plans for facilitating credit availability to start ups?
Jayant Sinha: There is a lot happening on credit availability for SMEs. Certainly, starting with Mudra, we are providing micro-enterprises the ability to borrow between ₹ 50,000 and ₹ 10 lakh. As you know, through Mudra Bank, we have 2.27 crore borrowers who have borrowed over ₹ 1 trillion. We are also in constant discussions with RBI and with banks to ensure credit, which is the lifeblood of the economy, is available for working capital and other purposes for SMEs. Certainly, the private sector banks do not have an NPA problem and are able to lend to SMEs and many of them are speccialized in lending to SMEs. Sidbi, of course, is making a lot of efforts to ensure that credit is flowing to SMEs as part of the India aspiration fund to ensure that Indian venture capital funds take off. They are looking at Mezz and debt oriented funds as well. If any entrepreneur feels that banks are not being appropriately supportive or if there are reasons to believe that something unjust is done to them, please reach out to us at email@example.com.
Bhan: Let me ask Akhil Gupta, vice-chairman, Bharti Enterprises, do you feel that the government will achieve the number (on spectrum auction).
Akhil Gupta: The confusion was that this ₹ 98,000 crore has been kept for just spectrum auction. The first part is obvious. The second part about the spectrum auction—it is anybody’s guess how much you will get. And I am not in a position to talk about it because we are an interested party. Third, It’s a good assessment, but I am told you are aware these are under litigation.
On an overall basis, at the first sight, it sounded completely out of ordinary. But when you break it up into three parts it looks far more reasonable.
Venkatesh Kini, president, Coca Cola India: The policy focus on rural India is excellent for consumer products industry, which has seen significant slowdown for the past two years, as this move would stimulate demand there. Secondly, I am also glad that you have not touched the excise duty on juices. The only question I have is that the recent excise duty on aerated drinks makes the tax rates on Limca higher than on alcohol in some states. I hope you will have a relook at it.
Adhia : From 18%, we raised it to 21%.
Venkatesh Kini: Central taxes alone is not a problem, but the combined central and state taxes hurt the industry.
Surjit Bhalla, economist: This is going to turn out to be the most important transformative budgets that India has seen. There is a larger issue outside of the budget, which is, how we improve public sector delivery. I really appreciate the efforts being made, but there is the need for more to be achieved, especially in primary and secondary education.
Compiled by Elizabeth Roche, Pretika Khanna, Gireesh Chandra Prasad, Shine Jacob, Prashant K. Nanda and Amrit Raj of Mint.