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'The finance minister should revive the stock markets'

Every year, on the eve of the annual Budget, successive finance ministers have patiently listened to India's major business associations like the Confederation of Indian Industry. This year too, CII representatives have constantly met Finance Minister Yashwant Sinha with advice, warnings and demands on issues that ranges from tax policies, infrastructure development to critical incentives to spur investments in various sectors.

The man who leads the CII's budgetary lobbying is Arun Bharat Ram, its president and vice-chairman and senior managing director of SRF Limited.

In the past, as chairman of the CII northern region, he has made significant contributions to the business environment in India. In an interview to Senior Associate Editor George Iype, he makes a case for a Budget that can serve as a basis for investment planning in the country.

What do you expect from Yashwant Sinha's Budget?

I expect the Budget is going to be designed for the Indian economy growing again. For that to happen, the finance minister has to take some bold and effective steps. The most important thing is that he has to make commitments for investing in infrastructure areas. Only investing substantial amount of funds in the infrastructure will help the revival of the manufacturing sector in the country.

In the last two years, we have seen very little orders in the manufacturing sector. One of the causes for this is that the infrastructure in the country has not developed as expected. CII has already submitted a document to Sinha. We have outlined the measures that should be the contours of the coming Budget. We have asked him to focus on tax policies for infrastructure and lay down certain critical incentives to spur investments in these sectors.

What are the other recommendations CII has made to the minister?

We have also suggested that there should be reduction in the taxes -- both direct and indirect taxes. Particularly, the surcharges on income tax have to be done away with because the direct tax collections have been very good. So there is no reason why the surcharge should not be removed.

It is important for the finance minister to revive the stock markets through the Budget. One way to revive the stock markets should be to either remove the dividend tax altogether or at least bring it down to 10 per cent from the current 20 per cent. The government also should widen the tax base to get funds for investment. This should be done by adding more people into the tax net and by taxing many of the services that are not taxed today.

We have been talking about taxing the rural rich for many years now; but have not really done anything serious in this regard. I think at least those who are earning Rs 5 lakh per annum should be taxed because they are also beneficiaries of subsidies.

Have you suggested anything about import duties?

Yes, yes. We have recommended that import duties should not be brought down this year because Indian industry is today confronted with many disadvantages vis-à-vis imports. The main disadvantages are that the power rates and the cost of capital very high compared to our competing countries. Then infrastructure delays, transaction costs etc add up to the cost structure of Indian companies. Till the government starts taking care of them, we do not believe that the import tariffs should be brought down.

What are the problems Indian industry faces?

The major problem Indian industry faces is that our manufacturing costs are high because of government reasons. The main reason for that is poor infrastructure. We have been talking about global competition; but how can we compete without infrastructure like good roads, airports, ports and efficient electric boards in place?

If internally companies do not reform themselves and take corrective action, we believe that they will not survive. They will die. But if the infrastructure facilities are not developed on a war footing in the country, Indian companies will struggle.

Is Indian industry in some form of depression?

No, no. It is not that. There are two kinds of companies in India. One, which are correcting and reforming themselves, but because of outside forces, they are not able to compete. The second set of companies which are not attempting to reform themselves.

For these companies, nothing much can be done. If they die, they die. In other countries also, companies are dying because of not correcting themselves. If every company is to survive, you would have over-capacity in every industry. It is important that despite infrastructure problems, companies in India should take initiatives to succeed.

What about the divestment process? Don’t you think the process has been very slow over the years?

The process has been very slow unfortunately because of the nature of the government. The National Democratic Alliance partners have not been on the same wavelength. While the prime minister and some ministers have been keen to complete the process quickly, there have been some partners who have not played the ball.

We hope that now there is much more consensus and agreement, within the next few months, big ticket items like Indian Airlines, Air-India, Maruti, petrochemical companies will be divested.

What about the economic reforms process? Don’t you think the reform momentum has been lost in the last few years?

No, I would not say that. The second and third generation reforms we are now talking about now are the different and more difficult than first generation reforms. If things are not moving fast these days, it is natural because we are now dealing with more tough reforms. Labour reforms, reforms of the banking industry, privatisation of public sector undertakings are difficult items.

Why has foreign investment to the country slowed down?

Foreign investment has slowed down, sure. But for that matter all investments to the country has slowed down. Even Indian investment has slowed down. We have to understand that capital -- whether foreign or from home -- will not come until the proper infrastructure is in place and until the working conditions are improved.

Looking at last year's Budget, do you think he lived up to the promises?

To many of his promises, he has lived up. But there are some promises, which failed to live up. But he can not be blamed, because he is part of a coalition government. There are some areas like divestment, which do not actually come under Sinha's ministry.

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Budget 2001

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