Budget 2015-16: GST, improved FRBM, widened tax base on Munjal‘s wishlist

“The government should make starting up a business, operating it as well as exiting it much more easier for any substantial expansion,” he further adds.

Below is the verbatim transcript of Sunil Munjal’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: I won’t call it a wishlist but what is a reasonable expectation that this Budget can do to spur what is almost a comatose capex cycle in India?

A: There are two or three perspectives here. One is what is necessary in the overall economy, two in capital formation and third as you mentioned in the manufacturing sector itself. I think it is important to figure out a series of steps which will bring investment cycle, investment bank into the economy and for that starting from manufacturing, there is a need to make the investment allowance cycle more user friendly which will allow it on all investments, allow a spillover if you are not able to utilise investment allowance like you have in depreciation over a period of time.

As also look at bringing higher accelerated depreciation on all activities related to innovation, research and development. While we have permitted R&D but new buildings for R&D and new activities for R&D all of that also needs to be brought in so that we don’t only start manufacturing, we start becoming amongst the better manufacturing nations in the world and that is the only way for us to build manufacturing as a base which will focus on supplying into India and also globally. 

Latha: Since you took the diversion into investment in defence, are you as your Munjal family getting into defence in a big way, should we hear something in terms of your buying stake in Pipavav Defence sometime soon?

A: I think you should know better than to ask a question like this because these kind of speculative reports are things that I as a policy and philosophy we never comment on.

Going back, you made an interesting point which I missed out. The ease of doing business is the single most important thing that government can do today to help industry grow and to look at all three aspects – setting up a new business, operating an existing business and also shutting down or exiting a business if required. All three need to be worked at by removing the physical interface between government and industry by automating all that needs to be done but by writing a new fresh set of rules which are simple, easy to understand and easy to implement and which if flouted by intent will have consequence of punishment which is quick, impartial and effective. I think both things are necessary.

Latha: The government has started on a very positive note, the transfers from the finance commission though it is from a constitutional body has come with such immediate welcoming and acceptance by the Prime Minister himself. Does this set the stage for the center being able to influence states? This is not a Budget issue, this is something which the Prime Minister can lead by example, he proved it in his own state but do you see any difference on the ground in any state at all other than Gujarat?

A: I think there are number of states right now who are very keen to attract investments. Rajasthan has made their intent, Andhra Pradesh, the newly formed state is going out very aggressively, other states in the North, even Punjab is now saying we want to do more so there are number of states from whom over the last year or two one has been hearing murmurs and some actual action; not enough but some actual action. I think this is a great opportunity for the smarter ones to seize the day almost. Bihar has made a new set of comments only lately with the earlier Chief Minister coming back that they would create an environment which is welcoming for investment and for industry.

I think there is clear realisation today in governments or in states that unless they are able to create additional industrial and economic activity, the ability to create the million jobs every month in India is going to be very tough. This will happen in states, the center is going to be only a facilitator. It is going to happen in state after state and we do hope that some of them will make a quicker move, some will be slower and which is why we have been talking about goods and services tax (GST) for so long to take away at least from the taxation side all the burden and the cascading effect and the need to stop at every state border to truly turn India into one common market. We do hope that will be one of the announcements we will hear with an actual plan laid out and terminal date. I wish the Finance Minister would also announce a new revised Fiscal Responsibility and Budget Management (FRBM) which is more realistic, more transparent and more in keeping with what is going on in the world today.

Sonia: Apart from GST and FRBM there is also a lot of expectation that things like minimum alternate tax (MAT) would be lowered for infrastructure projects for SEZs, for SMEs. Also there is talk on boosting infrastructure bonds to hire tax incentives to infrastructure bonds. How much space do you think the government will have to actually undertake these kind of taxation incentives?

A: A few months ago I would have said almost no room but now as I said with the oil prices being where they are because that is one of the large import bills of India and inflation being under check now for a while there is room to play a little bit today with the central government. If they can up their budget for disinvestment from public sector enterprises especially those which are loss making because on the loss making ones, on the ones there is nothing coming back to the government in fact the government is continuously funding some of them this would be a win-win for all concerned; that is one set of headroom.

The other is to make the taxation regime simpler, easier to comply with and widen the tax base; we have to do that because if we don’t you are going on putting the same additional pressure on the same few tax payers that you have as a nation and that becomes almost unfair after a while. I think it is an easy enough thing to do. Politically it will be a tough call but it needs to be done. One of the issues people have commented on is that after the Delhi election results will the government continue to take the developmental path in this Budget as was expected and I hope and I wish that they would continue down the same road because that and only that can allow them to create prosperity in India and then distribute prosperity to all the citizens across the nation.

Latha: There is also one expectation that some of those service taxes and excise duties could go up, this could be in preparation for the GST. Also, we have not gone back to the level we were in 2008 when post the crisis for stimulus reasons the taxes were cut; we didn’t quite go back. If that were to happen even by a snitch would it be negative?

A: At this moment when the return and the growth in the market is very nebulous, very slow and it is very patchy across India, it is not across the board right now, in fact the rural areas have seen a decline it would hurt the market temporarily. However, there is also a need for us to go towards single GST rate and it maybe better to do it in phases rather than do it in one day when the GST gets implemented. So, even though it will be a tough call it may actually have to be made.

We have to be realistic as a nation, our expectation of government needs to be realistic, our ability to support the government’s growth program also needs to be realistic. So, I would imagine some of that may happen but on the MAT that you mentioned it is absolutely important that MAT is not just brought down, logically SEZs should have no MAT at all. There are number of issues like investment allowance, should not have MAT set off. So you are taking away the incentive you are giving itself so there is no incentive in that case.Latha: You just mentioned that recovery of the consumer is patchy and that it is non-existent in rural areas. It is good to hear that it is even patchy, is the consumer really coming back, is there a recovery?

A: In parts you can see the consumer coming back. It is not across the board in all verticals and it is certainly not across the country but the early signs are there. The recovery has got pushed back, we were expecting to see full recovery earlier this year but it looks like we are pushed back by anything, it could be six months, nine months; it is a little bit hard to predict right now because there are many moving parts and I guess in some sense the coming Budget will also define some of the things that would help the recovery get quicker or go on at its normal pace.

Latha: Global markets, are they also less helpful than they were say six months back or do you think the inroads you made in that space are advantages that you have still retained?

A: The global markets are certainly a benefit for any Indian enterprise who can expand beyond the Indian borders. The issue is the global markets are slow right now. Barring the US, most of the major economies are slow. Even China is slowing down right now. Some of the countries in Europe have started to show some minor improvements like the UK interestingly. Some countries which are almost completely written off like Spain are showing an improvement. Italy they are saying will be the next one which will improve but there are some which will still take sometime. So, for Indian companies who are focused on the global markets it is a tough time but there is a small opportunity there.Sonia: Is the private sector ready or does the private sector have enough appetite to participate if the government allows higher private participation because in this Budget there is an expectation that for various sectors for example for roads there is an hybrid annuity model that is going to be proposed by the government where they will invite higher participation from private sector. However, do you see higher appetite or confidence from the private sector to participate?

A: The private sector is very wary right now because of the experience they had earlier. There was a great deal of enthusiasm when the first round of tenders were given out. Projects were taken up, some got implemented very quickly and then the process of clearance became cumbersome and slow and financial closure become very hard to come by and some of the companies suffered.

They got overleveraged because of the large loans they had taken. So, people will watch to ensure that the current framework is one which is workable and can be implemented in reasonable period of time. If that be the case it is a very attractive sector. The hesitation right now is because of the experiences some of the companies had but as a sector it is certainly a good sector. It allows massive investment at the beginning and a regular annuity income to come in over a period of time. So, both sides it is a good sector.

I just want to go back to the international markets. I think for those companies in India which have started approaching the international market, it is actually a big step up because it offers completely new markets from the one they have been focused on in India. We have seen the experience ourselves as a nation going to 22 countries in the last two years that it gives you fantastic exposure, very good feedback on markets and a new opportunity to grow the markets.