Budget Imperative

Updated: Feb 28 2003, 05:30am hrs
The market may be running on speculations about what the finance minister Jaswant Singh will reveal in his maiden Budget on February 28, but Crisils MD & CEO, Mr R Ravimohan, is taking the finance minister on his word that all budgeting has been transparent and there is not much to jabber about in the run up to the Budget announcement. Mr Ravimohan expects some of the tax exemptions to go but, corporate tax rate to stay. He believes that the finance minister will try to put more money in consumers hands but he does not see the long-term capital gains tax going away. Excerpts from CNBC Indias exclusive interview with Mr R Ravimohan.

Do you expect a Budget full of surprises or, is it going to be a very quiet one
It wont be too surprising. I would take the finance minister at face value. He has said that he wants to be very transparent, though at this point it doesnt look like there is much transparency. So everybody is speculating. But he did mention as we went into the Budget season that, everything is already laid out, so where is the need for any further consultation There is scope to believe that parts of the exemptions might be chopped off. Since the corporate sector is seeming to be turning around well, what currently is the bottleneck is really the equity market. The provisions regarding the capital market taxation issues would come through and that would be good for the equity market.

What do you expect would happen to dividend tax and long-term capital gains tax Is there any scope of reduction in corporate tax
The moves that were suggested by the Kelkar Committee on dividend and capital gains would at least be partly met. I dont think that the direct tax rates on corporates would be tampered with this year given the fiscal deficits. But what will happen is that a lot of the exemptions given to various corporate sectors, which have been delineated in the Kelkar Committee report, would actually get lifted and the government claiming that, would add to the tax kitty.

How realistic is it to assume that we will see a cut in the capital gains which would have a multi-year tax impact
This government has seen the benefit of spending ones way through crises. The road-spending program has contained some problems of the rural economy. So, I think that this governments philosophy seems to be - put money in peoples pocket and that would take care of the issue.

If the government trims too many taxes, where does it raise money from for its own spending Is the corporate income tax burden likely to go up
No, that is why I say that there isnt any scope for reducing the tax rates. But there are pretty hefty exemptions, at least in the governments opinion, and they would try and balance that. Also, I am not too sure if they are going to completely do away with capital gains tax. Maybe they would do some rationalisation bringing it in line with some of the neighbouring countries.

What can the government do in terms of infrastructure spending and stimulating growth
I think that that would be one of the big pushes in this Budget. Since most of the infrastructure spending is happening at the state level, reform of the state sector will happen through the carrot and stick policy. Last year, we saw some of that happening in the power sector. I see that policy expanding substantially to include much more of power sector and central and larger funds allocated, which will serve as an incentive towards reforming states to take a larger share of that pie. This will also be used as a stick for those states that are not reforming and spending on infrastructure.

Do you think the government will be able to launch VAT on April 1
I think so because most states have got the framework in place and are eager to go. The lobby from the industry has also been pretty consistent and persistent. I think that VAT will happen on April 1.