You are caught in a bit of a dilemma when it comes to indirect taxes because these taxes are sometimes seen as a cause for inflation. But excise taxes has just increased; growth has gone up by 6%. Can he (P Chidambaram) afford to cut taxes here? Do you think he will?

Shah: The compulsion of the whole inflationary situation may take precedence on any form of tax policy and consistency. My sense here is he has showed early indications and has already cut custom duty on a few key inputs.

Obviously there is pressure under WTO commitments. We have to try and go to the ASEAN rates. Indications say that is where we are headed.

From an excise perspective, I don’t know if the environment really warrants an across-the-board cut. He might just have to cherry pick specific items which have an impact on the inflation. That is one part of it.

The other is, if we are in the stated and committed position of GST by 2010, you need to de-stratify so many different rates of tax across so many indirect taxes. Over there, he will have to start showing what our our GST rate will be. Will it be 16, 14 or 12? Those indications would pretty much come through in this Budget, I think.

A lot of industrialists have spoken about removing all exemptions but bringing down taxes. What are the exemptions left to remove? Most of these have a sunset clause, whether telecom or IT. Is anything left to be removed? If so, can you see him not touching this at all?

Taneja: Let me put the exemption in three broad baskets.

1. The so-called political exemptions: you want to invest, redevelop Uttaranchal, Uttarkhand now, or J&K or Northeast or Sikkim. They are not really driven by industry so much. Even there, Northeast and J&K are going out this year. There will only be Sikkim, Himachal and Uttarkhand left.

2. The social infrastructure type of exemption. Some are going out here, too, so what is left is that there are core infrastructure roads, highways and power sectors. If you look at the two recent ultra mega power projects and see tariff rates, part of the reason why they are so low is there were tax incentives around it, which enabled the low pricing.

3. What is left on the core services and manufacturing side is also going away. Things like R&D is going away this year. Aircraft leasing is going away this year and so on.

The only big one which has come in the recent past is SEZ.

Do you see the FM extending the exemption that due to go in the next couple of years? There is talk that he could extend. If so, what could it mean for SEZs and the whole policy, because a lot of SEZs are being set up by IT companies.

Taneja: There is merit on both sides. But let me tell you why it should stay.

1. If he wants a more holistic growth across the country and smaller cities to grow, 10-A and 10-B are good. Because you can set a 30-man unit, a 50-man unit and a 60-man unit. For a small company to go into SEZ is very difficult. So if you want this whole Silicon Valley in Bangalore, Hyderabad, Chennai, Kochi and Varanasi, it is good to extend that.

2. Many countries around India are competing for the same space: Philippines, Vietnam, etc. You can't ignore that fact. If push comes to shove, the guys who will get hurt are the SMEs, because big boys can move to SEZs. The small SME can't move to SEZ.

I think it should stay. If he thinks that big boys should pay tax, maybe he can have a limit of Rs 500 crore turnover or something like that.

What do you think? I know you have been against exemptions.

Butani: Just to elaborate on the point that Gaurav talked about, it is important for the government to look at the quality of exemption. You can't simply say we will take away the exemptions and moderate the tax rates.

There are certain exemptions where there is an economic rational to continue with it -- it is a question of investment or employment generation or a question of future.

You talked about SEZ. SEZ was brought with a laudable objective that it will encourage investment in core infrastructure.

It is a different story that SEZ policy got mired in controversies with respect to land. The government is now coming back and saying it is giving away several thousands of crores which SEZs will benefit.

But I think it is important to measure what it is getting in return. If it is giving away tax sops and, in return, can accelerate GDP and create a lesser level of unemployment, it is justified, to some extent.

Specifically to IT and ITeS, I would support Gaurav's point. In fact, I would say it is evident with the track record of the industry on how much it has performed. So there is clearly an economic rationale to continue.