Budget 2010: FN Subedar's Expectations

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In an interview with CNBC-TV18, FN Subedar, President-Finance of Tata Sons spoke about his expectations from Budget 2010.

Below is a verbatim transcript of the interview. Also watch the video.

Q: What are you betting your money on this Budget?

A: I don't think the rates are going to go up. I would expect that these rates remain. The roadmap on deductions going away is very clear. The Direct Tax Code (DTC), which we spend a lot of time on, has been unveiled. We don't know whether it is going to come through, not come through maybe little bit of it may come in the Budget.

Q: You think so?

A: That is what the newspapers keep saying.

Q: What do you think?

A: It would come in. So long as that howler of asset based taxation is not brought in and we can rest assure that its ghost has been exorcised.

Q: I am not sure you can do that but we have different guests come out to this segment. For instance Sudhir Kapadia of E&Y who believed that they would get rid of some of the fiscal stimulus measures and in fact then allow for a reduction corporate tax rates as envisaged by the DTC. We have had Rupak Saha of GE India come in and say that he believes some of the measures in the DTC whether it is GAAR or things like that will probably be introduced in this budget itself. So what are you definitely expecting will happen this budget?

A: I would think the fiscal stimulus gradually will have to go and some sort of a roadmap would be laid out by the FM in the budget. Whether one will see an immediate reduction or roadmap manner in which Reserve Bank of India (RBI) announce its cash reserve ratio (CRR) cut, which will happen in one or two installments, is something, which I suppose one should be ready for.

Q: So you don't think it will happen in this budget, do you think he will lay out the roadmap?

A: I would think so, yes.

Q: Which would be over the course of the next six-eight months?

A: Yes. There is improvement in the economy but a little more while is required. One isn't seeing capital spending picking up. Some of the engineering company results, which are coming out are kind of revealing that it is still a cautious optimism, a little bit of a wait and watch.

Q: Which is what banks will tell you on the credit growth figures as well. So are you only then expecting a roadmap for the rollback of fiscal stimulus measures or is there anything else that you would like to add to that list that you think that will happen at the end of February?

A: I don't think the rates and the deductions would be tinkered with at all. I think the rates would continue in the manner they are.

Q: There an interesting point, which you were talking about with me offline that was on government accounting. Do you want to put it up here?

A: It's not something, which I think one can expect out of this budget but the whole corporate sector - we have always worked on a mercantile method of accounting. We are kind of refining it and are bringing it to world standard accounting method so that accounts are comparable across countries and we will be laying down the roadmap for IFRS with its year or year after next or the smaller companies will get into it a little later.

The government accounting continues to be on receipt and payment basis and somewhere along the line we need to even make that change out there because this skews up the manner in which one looks at collections, demands and assessments, which are raised on SEZ because you have collected your money you consider it your income and you don't realize that some of it may be repayable. The interest consequences of those money, which you have collected and not accounted for.

So the government after all is no different than a corporate manner of speaking. I also understand a couple of countries are actually moving towards accounting on a mercantile basis - on a basis of an accrual concept.

Q: So you expect that will happen in India?

A: It has to eventually happen.

Q: I have a final question to ask you, considering that you have said that at the most to expect a roadmap for the rollback of fiscal stimulus and no tinkering with the rates or exemptions so to speak as of yet. Across the world and this is what I picked up in Davos - everyone that I spoke to from the developed nations was talking about higher taxes on the rich. We have seen that happen in the UK in last year they hiked the tax to hose earning more than 150,000 pounds or more to the amount of 50% then the tax on bank bonuses. We have seen similar stuff happen in the US and still more focused on the banking space but almost everyone seems to be reconciling themselves to the fact that as the economy improves just a minor bit, there are going to be higher taxes on the rich because that is the only way governments are going to be able to bring in more revenue till businesses are back in full form. Do you think it's a road that we are likely to walk down in India?

A: The Indian growth story has bee much faster. The rebound has been phenomenal in this current year and I suppose that should give the Finance Minister enough of confidence of increase in taxes because of the improved performance.

Q: But the fact is that we still need to walk down the road of fiscal consolidation as well very desperately considering where our deficit numbers have gone, that is one part, yet we need to continue spending on the social sector?

A: I still believe that the tax net has to be expanded. Tax deductions at source or TDS is such a potent weapon, which the government has in its hands, especially with the computerization, which has happened, it gives you the whole host of opportunity to look at to whom was this money paid. We shouldn't look at TDS just as a manner of collecting some amount of money, which the private sector helps the government to collect. The entire database is something, which is wide open for the government to increase and expand its tax base.

Q: So you are saying they are not going to hunt down the rich any further?

A: Yes.

Q: So we are not expecting a firecracker budget by your standards? Is that the way it is?

A: Yes, I would think so.