Budget should focus on reforms, avoid tax hikes: Adi
On NDTV Profit’s exclusive show, Banking on the Budget,
Adi Godrej, Chairman of the Godrej Group says that the
government needs to make some major reforms such as
introduction of Goods and Services Tax (GST) in the
“Cooperation of Centre and states is a must for a
success of GST,” he said, adding that any increase in
tax rates will be a negative for growth.
This is a make-or-break budget for the government in
many ways. What are the two or three main factors you think the finance minister
must consider and push in this budget?
There must be a considerable fiscal stimulus in this budget, the economy is not
faring well, and GDP growth is decelerating. It is extremely important that
especially industries that are not doing well such as capital goods, power,
property development need stimuli and the government must look at adjusting
taxes in various areas whereby those adjustments can get them more revenue by
decreasing tax rates.
Corporate India is suffering from a bout of depression - what does corporate
India particularly want for the mood to change? There is talk of the service and
excise duty being raised to pre-crisis levels. Will this come as a setback to
Most definitely, any increase in tax rates will be negative for growth. I hope
the finance minister doesn’t resort to that because the last time the economy
was not doing well, he reduced the tax rates very successfully and that gave a
stimulus to the economy and growth was restored. Now we are in a worse position
than we were then.
At this stage, to increase tax rates would not be good for revenue collection
because the growth rate would further come down and therefor, revenues would
come down as well. This is the time to provide stimuli. What the finance
minister also needs to do is to announce some major reforms; the biggest reform
that would affect the Indian economy and solve our macro-economic issues is the
goods and services tax. The finance minister needs to make some announcements to
placate the states who are not cooperating in the introduction of GST, it needs
to be done. I think this is something the states and the Centre must sit down
and get done. It’s been delayed for three years. It’s an extremely important
economic reform for our country. He should also announce FDI reforms, in
aviation, telecom and insurance. Such announcements would add tremendous value
to the sentiment which is improving.
But you think the government will have the support of states in implementing
GST this year? The UPA is on a sticky wicket, more so post the state assembly
election results. How much can the FM (finance minister) do? Do you think the
resolve of the government to cut spending and subsidies will take a backseat and
we will have a populist budget instead?
No. I think GST is very easy to implement. It’s very good for the Centre; it’s
very good for the states. It will benefit the states and it will benefit the
macroeconomic situation. This is not a right time to increase wasteful
expenditure. I think expenditure must be controlled and when the economic growth
is restored with a good budget, then perhaps in that year, the government could
increase expenditures too.
It's going to be a tight rope walk between managing fiscal deficit and
growth. What are the tools the FM can make use of at this point? Is there a need
a for renewed divestment push?
Yes. Even the Rs 40,000 crore target is very low; there should be a divestment
target of a Rs 100,000 crore and it is very easily doable, there are many ways
they can do it. Unfortunately, the government wakes till the end of the
financial year to get active on divestment. Divestment should start from April
and if the markets are good in the early part of the financial year, then
divestment should take place. Every year I have noticed that they wait till the
end and then something or the other comes up and they miss the target. The
divestment should be managed efficiently with good advice and not set very high
target rates for divestment. Besides that, the government should seriously look
Do you believe that the last year was one of missed opportunities? And
looking at the timing of the budget, do you think the government should go all
out on reforms? If the FM sets a fiscal deficit target of 5.5 per cent and
growth rate of 7 per cent, will you be ok with that scenario? Is that a
comfortable environment for India Inc?
No, 7 per cent is too low. We could easily have a growth target of between 8-9
per cent .Implementation of GST alone, other things being equal, would add 2.5
per cent to our growth rate. It would solve a lot of our macroeconomic issue. So
we shouldn’t be satisfied with such low figures because India needs to grow at
8-9 per cent or more over the next 10 years. If GST is brought in, I wouldn’t be
surprised if Indian growth rate would reach the 9-10 per cent level again for
many years to come.
The infra, power and mining sectors have been languishing this year. Any
expectations on that front?
I hope so. The coal issue is being addressed as it was a major issue for the
power industry, which has suffered considerably. Infrastructure hasn’t done
well, capital goods haven’t done well. As we use to do in previous budgets,
individual areas which are facing issues and problems should be addressed ,
aviation is in bad shape, so all these areas need to be addressed and solutions
should be found.
Investments have come to a standstill, what can the FM do to spur investments
and growth, reintroduce investment allowance? The RBI is now waiting for a
fiscal consolidation roadmap in the Budget before actually cutting rates, but
could that be lacking?
One of the biggest disincentives for investment is the very high minimum
alternate tax (MAT) rate introduced. The MAT was 7.5 per cent, which is a
reasonable alternative tax, which today is 20 per cent and after surcharge it is
21.5 per cent. So, you give incentive by one hand then take it away by imposing
a very high MAT so investment incentive that you provide are being negated, I
think the MAT should be brought down to a max of 15 per cent.
On the part of Godrej group - both on the FMCG and realty business what are
you hoping for?
In realty, incentives must be provided to people to buy houses, current
deduction is Rs 1.5 lakh which should increase just as the reduction for
investment in the mutual fund should also be increased, such an increase will
help the real estate sector and I do hope RBI reduces rates as lower mortgage
rate would be a stimulus for the real estate sector. In FMCG, things are going
quite well, demand is strong so there is no particular need to tweak anything in
Realistically speaking, how much do you expect the Budget to deliver
considering the sticky situation for the government politically as well at this
I don’t think the political situation comes in the way of a smart, intelligence
government-oriented budget, that’s what we need and that kind of a budget helps
the political party in every political situation. So, I’m hoping that the FM is
a very capable person and is very cognizant of what is going on in the country
so I am hoping we have a budget that is growth oriented.