Expectations from the Finance Bill 2003-04 - Views on News from Equitymaster

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Expectations from the Finance Bill 2003-04

Feb 12, 2003

India is becoming globally competitive and the Indian industry is increasing its exports. What is needed today is a responsive policy regime, which will reduce transaction costs, enhance efficiency, invest in the social sectors and make India more efficient so that productivity increases.
1.    Investments in the social sector
It is absolutely essential for the government to provide for primary education and a midday meal programme. There should be an additional allocation of around Rs 40 bn to meet the requirements of the children for education. I would like to suggest a national health insurance programme to be instituted, with 50% of the premium contributed by the GOI. This would require an investment of about Rs 35 bn and this money could be used by the insurance companies for building infrastructure and defraying the health costs of the poorer section. Higher education should be liberalized by granting autonomy to our universities and the IIT's and the IIM's; allowing the setting up of Private Universities; bringing in a more liberal and more cost effective National Student Loan Programme through the banks and providing a line of credit of say, Rs 20 bn through Hudco to Universities and institutions of Higher Education for infrastructure so that better capacity is built up.

2.    Investments in Judiciary
The commercial sector is often bogged down by a slow legal process. Our legal system requires investment in greater number of courts, more judges and investment in IT infrastructure. I suggest an increase in the investment by around Rs 25 bn for this purpose.

3.    Investment in Infrastructure
The State Road Transport Undertakings (SRTUs) are starved of investment. The GoI should consider granting Rs 20 bn to SRTUs. This, along with a bank borrowing of Rs 20 bn should be used to increase SRTUs fleet by more than 20% in one year and have a significant impact on the automobile industry. The railways should be encouraged to borrow from the financial markets. This would allow pending projects to be completed in the next 3-4 years. I suggest that the GoI should give a grant for this massive investment at Rs 20 bn a year for the next 20 years so that the interest on the borrowing can be serviced and capacity can be created urgently.

Our major cities suffer from inadequate investment in roads, power distribution, drinking water and sewerage facilities. I suggest an enhanced allocation of around Rs 25 bn as interest subsidy, so that our corporations and municipalities can raise funds from the financial markets and invest in urban infrastructure. At, say, a subsidy of 50% at an interest of 9%, this would create an investment potential of Rs 550 bn. This would have a dramatic impact on the infrastructure in our cities. The interest subsidy could be phased out over 5 years so that the cities stand on their own feet.

4.    Cost reduction
I suggest a decrease in the interest paid on the Special Deposit Scheme from 9% to 6.5% keeping in view the lower interest rates in the market. This would save the GOI around Rs 30 bn.

I suggest a cut of at least Rs 35 bn in the current export promotion schemes in the form of drawback and other schemes. This money could be ploughed back to infrastructure for export. In a number of areas, the drawback is more than the tax cost of the inputs.

5.    Tax Policy
I suggest that in indirect taxes, excise duties be reduced to 14%. Further, the special excise duty on automobiles, air-conditioning and polyester filament yarn should be abolished. This big bang approach would make these sectors more competitive and expand the market tremendously. India needs bold reforms at this stage.

I suggest an increase in the service tax to 14%, fully modvatable, so that the service sector contributes to the exchequer. This would offset some part of the decline in the revenues due to the decline in the excise duties.

The total tax incidence on manufacture should be reduced from the current levels (excise & state VAT) to say 19-20% over a period of time to make Indian goods more competitive.

I suggest an input VAT of 12% (being the average rate of state VAT) on all imports, fully modvatable, so that local manufacturing is given a level playing field. This would mean abolition of the Special Additional Duty.

I also suggest the abolition of the Expenditure Tax on hotels and the Inland Air Travel Tax to make tourism more competitive. Because of such taxes, our tourism sector is not competitive and India has missed on a major engine of growth.

Overall, these suggestions would lead to enhanced investment in the social sector, reduced transaction costs, and greater efficiency and positively touch the life of every Indian citizen. This would also mean enhanced investment in the future of our children and, hence, in India's future. As our Prime Minister said recently, our children are India's future and we must ensure that they are well fed, well educated and well empowered and we give them a country with good infrastructure, good policies and a globally competitive economy.

T. V. Mohandas Pai,
Member of the Board and Chief Financial Officer,
Infosys Technologies Limited


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