Forbes India and BMR together conducted a pre-Budget poll, of nearly 55 CEOs and CFOs from different businesses, to understand India Inc’s expectations from the Union Budget, scheduled on February 29, 2016.
Most of the respondents, who were polled in January, agreed that this Budget will be ‘very important’ for the Modi government as it enters its mid-term tenure.
“This is the best opportunity that the government has to actually put out some kind of a statement of intent,” says Sourav Majumdar, Managing Editor, Forbes India.
A large portion of respondents are confident of a 7-8 percent gross domestic product (GDP) in FY17 despite global volatility, but it is lower than government’s estimate of 8-8.5 percent.
While listing the government’s priority sector, it was infrastructure that topped the list followed by education, skill development and transportation.
The biggest concern, as found in survey, is the Goods & Services Tax (GST) Bill. About three-fourths of respondents said that a simplified tax regime will benefit of the GST.
“I anticipate that there are several niggling issues insofar as seamless credits on indirect tax levies are concerned. There are still issues with respect to inverted duties structure on many of the products,” says Mukesh Butani, Managing Partner, BMR Legal on GST logjam and delay.
Below is the transcript of Mukesh Butani, Managing Partner, BMR Legal, Gokul Chaudhri, Leader-Direct Tax, BMR and Sourav Majumdar, Managing Editor, Forbes India with CNBC-TV18's Shereen Bhan.
Q: How different was the mood this time around, take us the methodology, how many companies were surveyed, what is the sense that you get at the end of this?
Butani: We covered roughly around 55 chief executive officers (CEOs) and chief financial officers (CFOs) across a range of businesses from real estate, energy, infrastructure, automobile. We also had a good mix of multi-nationals and large Indian business houses as well.
Q: Is there a divergence between domestic investors and foreign investors because that is the sense we get. The foreign investors seem to be a little more enthusiastic about India than the domestic investors?
Butani: I don't know if there was any discernible trend that was evident that foreign investors thought differently. However, the issues were certainly different for large Indian houses than for multi-nationals.
To your earlier question, how different it was from last year, I think the mood was that of less optimism than what it was last year. I don't think anyone really said that we are running out of time, but certainly the real mood was are we running against time. I think that came out very clearly in the case survey.
Q: We are calling it the now or never Budget on CNBC-TV18 and is that the sense that you get as well?
Butani: Yes, because I think everyone is anticipating that this would be landmark, maybe not from a large economic reform standpoint but some of the important structural reforms announcements.
Nobody is expecting anything magical to happen in a year's time, but certainly an agenda is set out for this government as to how it is going to reform in the next 2-3 years of its tenure.
Q: We had asked people to tell us about what the realistic growth rate is likely to be. A majority 94 percent believe that it is going to be between 7 and 8 percent, barely 4 percent believe that it is going to be more than 8 percent. So, those days of 8 percent plus kind of growth number, that is not the expectation any longer?
Chaudhri: That is not the expectation because we haven’t seen the goods and services tax (GST) coming through and that has been another outcome of the survey where they are saying this parliamentary logjam on GST has not been a good thing. There was expectation that would also propel growth.
Q: GST is one aspect, even if we were to look at corporate earnings for instance. We haven’t seen any sharp pickup or pickup at all as far as corporate earnings are concerned. If we were to look at credit offtake we haven’t seen a pickup even as far as credit offtake is concerned. So, GST not going through is an issue but there seems to be a lot of other concerns that are weighing on sentiment as well?
Chaudhri: There is and as you correctly started, there were three messages which are coming out consistently from the CEOs both domestic and international, first is of course the race against time in some sense because they are seeing that this is a Budget that sets you into the mid-term of the government.
What they are also saying is that a number of issues which include tax, which are broadly within the realm of ease of doing business, they continue to trouble the boardroom.
The third thing which they are saying is, a lot of macroeconomic situation is one which does enable the government to have the leeway to carry out reforms which are very essential. So, in that sense it is now or never situation.
Q: Forbes has been part of this poll along with us and you have also put out a cover story on whether Mr Jaitley can deliver on Mr Modi's promise what is the sense that you get about Budget 2016?
Majumdar: It is pretty much what CNBC-TV18 is also saying in the sense that it is now or never. The sense in the boardrooms are that very much this is on the same lines in the sense that this is the best opportunity that the government has to actually put out some kind of a statement of intent.
It is not whether it is a big bang reform or something on those lines but there is a serious need for a certain statement of intent to show that the logjam apart there are things which are being done and the government needs to move forward.
So, I would estimate realistically like the poll suggests anywhere between 7-8 percent as the growth rate which people are betting on, nothing on the higher side beyond that. So, the sense is it is now or never.
Q: You asked that rank in order of priority, how GST will impact your business. Simplified tax regime, 73 percent, that is the majority believe that it will bring in simplified tax regime. It will reduce compliance cost, improve the supply chain and reduce production cost as well. So, clearly the benefits of GST are understood. This is a constituency that wants GST tomorrow. The question now is can the government deliver on that promises?
Butani: We all know the reason why GST is being delayed and there are a lot of opportunities for the government to deliver on most of the factors that you listed out despite not having a constitutional amendment. I anticipate that there are several niggling issues insofar as seamless credits on indirect tax levies are concerned. There are still issues with respect to inverted duties structure on many of the products.
Q: Irrespective of whether GST comes or not these are areas that require course correction.
A: Mr Jaitley has an opportunity to deliver a seamless central GST in this year's Budget and I anticipate that that would be very high on its agenda.
Q: So, give me specifics in terms of what you would expect or like to see?
A: Seamless credit of all central levies. Addressing inverted duty structure for certain industries.
Q: Some of it was corrected last year but any specific areas where you believe that it continues to be a big anomaly?
A: This has a direct connection with the Make in India initiative of the government. So, India has opportunities for propelling manufacturing in the IT industry, in many of the telecom products where we are importing because since India is a signatory to ITA too the tariff structure makes it far better for Indian telecom operators to import the equipment.
So, those are the two opportunities and I also see that people should not really be disappointed if the rate of service tax goes up because those rates have to be aligned with the revenue neutral rate.
Q: 15 percent you believe is going to be the case?
A: That is right.