Q: Is this clearly going to be a make-or-break Budget? What do
you think is going to be the one big idea as far as Budget 2012 is concerned?
Godrej: This is going to be an extremely important budget
because two things need to be done very strongly - one is to provide some
incentives for the economy to grow and secondly, fiscal balance must be
maintained. It will need more than just the Budget, to my mind the Finance
Minister should work extremely hard to see that the Goods and the Services Tax (GST)
is passed during the next financial year, the earlier the better. The earlier it
is passed his fiscal position will be better.
The other major thing he needs to do is to ensure disinvestment.
Fortunately, the stock markets have recovered, disinvestment could be a very
good thing to look at in this Budget, he needs to look at areas where reduction
in tax rates could lead to in fact increased collection, there are many such
areas, surcharges should be gotten rid of, in certain cases some rates can be
reduced and collections could actually increase because it would spur economic
Q: Do you believe that given the fiscal room that he has there is
going to be any sort of a reduction in taxes or do you actually believe that we
are going to see a hike in taxes especially on items like diesel vehicles, as
well as in goods like cigarettes?
Memani: Yes, on diesel vehicles at least by what one reads
and what's happening, that it's likely that it may come. Cigarettes are the
favourite and come up every year. So I am sure they will not miss n it this
year. I am not sure whether they will have room as much to reduce tax rates, but
my sense is they would be well advised to preserve and not increase tax rates
whether an indirect tax or on the direct tax side.
If they can provide for some incentives especially around
investment allowance or something, which may not have an immediate impact, but
it will encourage manufacturing, that will be great. I think it's important that
they will also need to augment tax revenues. They have to try and see there is a
lot of money that's locked in disputes and one of the thrusts could be to see
how they can unlock the money that's stuck up in disputes.
Q: Do you anticipate a hike as far as service tax is concerned
because that's the big buzz and speculation at this point? Do you expect a hike
in service tax?
Memani: No, I don't expect so. If they try and bring in
the negative list then I hope there is no hike. If they bring in the negative
list which looks quite likely, they will stay away from those areas that are
there in the state ambit. Even if you look at the GST, the central rate is
around 10%. So, I don't think they will hike it.
Q: The big idea this time around could perhaps be the Food
Security Bill. There are question marks and apprehensions on how he is actually
going to finance it. He hasn't been able to come up with recedes on the
disinvestment front. It is the first planned year of the 12th plan and
automatically we will see expenditure going up. Is the food security idea going
to be the big ticket scheme this time around you think?
Munjal: I am hoping he will surprise us and do more than
just food security. As you are aware the CSO advance estimates came out today
and the number they have given for GDP is 6.9%, which by itself is along
expected lines. But the worry is agriculture which they have said is likely to
be 2.5%. Food security also means additional collection and distribution of
food; it's not just a number. So on one hand is the fiscal requirement to be
able to fund it, second is the practical requirement of being able to grow and
There is a serious amount of work which needs to be done on the
agriculture policy both in the states and at the center, whether its getting
them to agree to a model APMC Act and there are whole host of issues, land
ownership, land transfers around agriculture. There is serious work which has to
be done and if we are going to have a bill of this nature, we are going to have
to find the resources to fund this as well.
We have no fiscal headroom at present. So, we need to create that
fiscal headroom. We will also need to widen the tax base, not just keep the
rates where they are or lower them for better compliance. We have no choice but
to widen the tax base as well. So, we will have to work on both.
Q: In terms of the reform agenda and from an intent point of
view, what do you think the government is going to prioritize and focus on?
Munjal: One of the things which has happened this year is
that they have moved the date of the Budget to be post the state elections.
Since state elections will be over, he may not make any single big bang
announcement, but I think of the number of issues which are pending, he is going
to pick up chunks of those and make those as announcements in the Budget. This
is why I am hoping for a positive surprise; not just one, but I think we will
see more than one announcement come in this Budget.
Q: The healthcare sector had a little bit of a disappointment
last year. This time around, what are you anticipating in terms of the social
sector focus as far as the government is concerned because clearly it's going to
be big on the agenda?
Trehan: It's very clear to everybody that we have huge
ground to cover as far as providing healthcare to our citizens is concerned;
it's actually dismal right now. So we know that we need to double the healthcare
delivery system and make it more affordable at all levels.
So with that in mind, there are three things that we have asked
for. One is to be able to stimulate the creation of capacity and that the
government provide us infrastructure status. The finance minister had already
alluded to this in his speech in Parliament and then said that the finer points
or the details will be announced later, but it hasn't happened so far. So we are
requesting the finance minister this year again to spell it out clearly so that
we know that people will get encouraged to create more capacity which is very
Second thing we have asked for is that we should have more
doctors and paramedical personnel. Today we are producing anywhere around 25,000
doctors and we need to double it to 50,000. So we actually need to modify the
rules of creation for medical schools, other paramedical facilities and funding
provided so that in the coming years we can accomplish that which is necessary
for us to be able to deliver the healthcare that the nation needs.
Third point is that we want the insurance sector to be pushed
forward so that it come up with programs or products which will enhance the
Rashtriya Swasthya Bima Yojna (RSBY) Scheme which is already there on the ground
for below poverty line people.
We need to enhance that scheme and we need to come up with PPP
models which will make it possible to deliver care at that level in rural areas
and semi-rural areas. So these are things that are actually pending for a long
period. Overall, the budget for healthcare allocation this year, which was Rs
26,000 crore last year, needs to be at least doubled so that we can in coming
years make up for all the years that we ignored healthcare to the people.
Q: Since the Budget is after the election, do you believe he is
going to have a little more room to perhaps move on things like subsides? Do you
believe that we are going to see a decisive move towards cutting down subsides
this time around?
Godrej: There won't be a better time for him to do that
except for immediately after a major election is over, so I expect a lot of
subsidies will be rationalized this budget. As you rightly put, there are
certain items on which excise increases like diesel cars or cigarettes is very
likely to my mind. Also there are some opportunities to increase import duties
in some cases. For example, I know a case in the vegetable oil business where
both Indonesia and Malaysia are subsidizing their value added manufacturers.
Clearly we need to react to that and that can create for considerable additional
Another suggestion I have for the Finance Minister is a little out of the
ordinary. The budget is generally a like a profit and loss statement, but he
needs to publish a balance sheet of the government and mark it to market. He may
not be able to do it right in this budget, but he should make an attempt to do
it so that the government and we know exactly what the valuation of all the
government's assets is so that the liquidation programme can be worked out over
a five year period.
They are tremendous, whether it's government owned land,
government owned public sector projects etc. I think disinvestment can be a
major source of revenue over the next two-three years to balance the budget and
improve the fiscal balance.
Q: I just want to pick on the point of disinvestment. Public
sector companies are opposed to any form of disinvestment at this point in time,
but we have seen how the government has arm-twisted them into hiking
disinvestments to bridge the fiscal deficit. We now have the possibility of an
auction route to bridge the fiscal deficit and to get more money by way of
disinvestment receipts, but there is opposition from public sector companies to
go down the disinvestment path?
Godrej: No I don't think there was an opposition to
disinvestment. It was an opposition to buyback of shares, which means you affect
the cash of the public sector companies, which is required for growth
Q: There was an opposition to buyback, but there was also an
opposition to a follow-on public offer. For instance, SAIL very publicly stated
it wasn't interested in doing an FPO at this point in time.
Godrej: Yes, but that was a time when the stock market
condition was such that an FPO would be difficult. In today's stock market,
which has improved considerably since the 1st January, it can be considered and
in the next financial year perhaps they will get times where that could be done.
In fact, they are way too late for the disinvestment. It should
have been done early in the fiscal year when the stock market conditions are
good. For example, in April-July period, there could have been a lot of
Memani: I think what the government can also do is, in the
earlier round of disinvestment that happened they were still holding minority
stakes in some of those companies and they are now quite valuable. So, that is
not linked to the market, I am surprised that the government is not pushing the
pedal on that because that can release a significant amount and help them come
very close to their disinvestment target.
Q: You are talking specifically about BALCO and Hindustan Zinc
Memani: Those two and there are two-three other companies
as well. So, I am surprised that they are not pushing the pedal on that. There
is a question mark at least in my mind as to why they are not pushing.
Q: Post the Vodafone ruling, we are actually going to see the
government move towards GAAR like provisions perhaps in this Budget itself. What
are you picking up? Do you anticipate that happening?
Memani: You are right; the government has taken this as a
setback. They are viewing this as a setback. There was first some apprehension
that they may want to bring in something that is retrospective but that's very
unlikely given the fact that the Supreme Court has delivered a very clear
verdict and I don't think they would want to take on the verdict of the Supreme
Court. They understood the intent.
What I have always said is if the statute doesn't support what
the government is intending to do, they may bring in some GAAR like provision.
They may not bring in some more stringent anti-avoidance rules, they may bring
in limitation of benefit clauses around the Mauritius treaty, but there is a
downside to it which is why the government has always been hesitant in doing
that. There are a string of other cases that are likely to come up which pretty
much establishes that the earlier provisions did not support what the government
Q: Infrastructure is likely to be another area of focus as far as
Budget 2012 is concerned. Tax concessions as far as infra bonds are concerned,
the infra debt fund, clarifying certain issues with regards to the infra debt
fund, perhaps those will be areas that he would like to clarify. But things like
the power sector, at this point in time looks absolutely abysmal. Now the PMO's
office is trying to take charge of that situation. On infrastructure
specifically what do you see the finance minster saying this time around?
Munjal: We have seen two or three successful bond issues
in recent times. They will certainly take advantage of that and push more and
more of the infrastructure companies and public sector companies to move in that
direction. We have three different options right now. One is the minority stake
entities and there are other non-strategic businesses that the government is
still invested in, in which it could easily cash out. Even if they don't cash
out completely from equity, they have huge assets like land banks sitting in
many of these companies and those can certainly be en-cashed. I am not sure why
we have not even thought about it.
Q: Corporate India seems to have adopted this mindset where the
fiscal deficit should be bridged by way of divestment. But fundamentally, that
can only take us so far. He has to look at streams that generate revenue because
disinvestment can only take us so far.
Munjal: I don't think there is an argument. To my view,
has to find a way to push for growth, he has to find a way to prune expenditure
and he has to increase revenues by widening tax base. And it's not that if he
can do one at the cost of the other, there is no option, you have to do all
three of them.
This willy-nilly means looking at subsidies once more sharply.
You cannot eliminate subsidies, that's accepted now, but you can target them
better with Aadhar getting rolled out. I think certainly you have the tool
available and if the intent is there I think it's certainly possibly now to have
a much sharper focus. Even doing dual pricing of products, which we have always
discouraged because it leads to mischief with specific identity of each
individual, is available.
Q: CII is actually recommending dual pricing of diesel; is that
Munjal: This is exactly the point I am making, now it is
possible. When you have individual identity which you cannot change, especially
if it's locked in with biometrics, then you can do these things and use these
tools that's what these are for.
The earlier problem was the extreme leakage and almost
mismanagement of some of these systems and the amount of money which was going
in was actually certainly not reaching the target audience.
Q: Stick your neck out and tell me what you really think he is
going to be able to deliver?
Munjal: I think he is going to focus on growth because the
reality today is unless you get growth you are not going to generate revenue. As
you said, unless you have additional revenue none of the schemes that we are
talking about is going to be possible to implement. So he has to find a way to
focus on growth, whether it's through additional investment allowance kind of
schemes, whether it's extended depreciation, R&D being extended to all
activities or a whole host of other activities which are possible to do which
will create growth.
So we have to be able to give out funds to allow growth and the
government is not giving this up, it's coming from the additional revenue which
will get created and that then will allow us to run some of the social schemes
in the manner that we would like them to see. At the same time, we are a bit
wary because we don't want bits and pieces of things like DTC coming into this
budget without all things comprehensively looked at. This is why we said DTC
must come only if and when GST comes. We hope GST comes this year, if not with
the budget, which seems unlikely, certainly by October of this year.
Q: The hope is that DTC and GST should come in together, but what
we are picking up is that some aspects of the DTC and some aspects of the GST
may come through this time around. He may make the transition towards both is
that your sense?
Memani: I think the empowered committee will be about to
give their report, so I have a feeling that they will respect the role that the
empowered committee is going to play. I am hopeful that unless it's something it
is very critical, provisions within the DTC will not come.
Moneycontrol.com, India, dated