In a post-budget media conference the budget-making team of finance minister Pranab Mukherjee tried to decode the budget. The officials included financé secretary R S Gujral, chief economic advisor Kaushik Basu, economic affairs secretary R Gopalan, expenditure secretary Sumit Bose, financial services secretary D K Mittal, disinvestment secretary M H Khan, Central Board of Excise and Customs (CBEC) chairman S K Goel and Central Board of Direct Taxes (CBDT) chairman Laxman Das and additional secretary-budget, Shaktikanta Das. Edited excerpts:
Can you explain how the clarification with regard to the transactions associated with Indian assets in view of the Vodafone judgment would impact similar such cases?
Gujral: The SC judgment talks of the need to ensure tax certainty. It also talks of the fact that elements like GAAR etc., are not there in our statute and they need to be brought in. The position of the government is that the intention of the legislature from the very first stage was very clear, that transactions like Vodafone are subject to taxation in India. This change is only a clarification re-iterating the original intent of the legislation. These are not cases of double taxation but cases of no taxation. Our stand is very clear: There should not be any case of no taxation. Wherever there are cases of double taxation, we will look into these and resolve these. We have brought in Advance Pricing Agreements so that genuine investors don’t face problems. There are a large number of similar cases. Our rough assessment is that the total impact would have been to the tune of Rs 35,000 crore to Rs 40,000 crore.
What would be the impact of excise duty and service tax increase on inflation?
Gujral: It depends on how much of the increase is being passed on to the consumer. The general experience is that half of the increase (one per cent in this case) is passed on. The finance minister summed up the essence of it: We have to be cruel to be kind. This is the short-term impact but for the medium term, it is absolutely appropriate and necessary.
Basu: If you don’t do (increase) that, you allow the fiscal deficit to be larger. In which case, you are injecting additional demand into the system which is there to stay. The long-run effect of the larger deficit would be bigger than the immediate effect.
The budget speech has talked about capping subsidies below two per cent in 2012-13. What would be the mechanism to do that?
Gujral: We do require other administrative actions, apart from the budget. Subsidies need to be targeted and directed to the beneficiaries and it must be ensured that there is no leakage. Separately, on the expenditure side, they are now tracking on a regular basis, the exact expenditure in the different schemes to different states.
Bose: If you compare with last year’s budget estimate, it is very realistic.
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Gopalan: We understand the harmful effect of subsidies and how it crowds out resources from other useful purposes. This kind of direction change to get into more productive sectors is a political commitment.
How much support will banks get through the recapitalisation strategy for 2012-13?
Mittal: The amount of Rs 12,000 crore this year is sufficient to meet the needs of all public sector banks. The provision of over Rs 15,000 crore made for next year is sufficient to take the capital adequacy ratio of PSU banks from 8.5 per cent to 9 per cent. The cycle of NPAs is going to get reversed and that is going to help us next year. If a holding company is formed, that is the way to capitalise the banks from next year.
How will the Rajiv Gandhi equity savings scheme work?
Gopalan: The idea is to increase retail participation in the stock market, so that the volatility in the stock market can be reduced. Second, it will get more savings into financial assets, which is required for the economy at this point in time.
First-time investors can avail of this facility is with an investment of Rs 50,000. Half of this amount can be availed of as tax exemption. This would be a once in a lifetime benefit.
Basu: We see there is a huge impact of FII movements on our markets because our own investment in equity is very thin.
This scheme will help tackle this issue. There is talk of an amnesty scheme being part of the white paper on black money which the finance minster said will be tabled in this session.
Gujral: I am not aware of any such provision.
With Rs 40,000 crore, spectrum auction is a major contributor to non-tax revenue. It seems the Supreme Court judgment cancelling 122 2G telecom licences has come to your rescue. Do you think this spectrum money and the disinvestment target of Rs 30,000 crore are conservative?
Gujral: In the last two years, we have not been able to achieve the disinvestment target of Rs 40,000 crore. So, I think it is a conservative figure. We wanted to be little bit on the conservative side, so that at the end of the year you don’t say we have again missed the fiscal deficit target in a big way. On spectrum, the auctions will take place in 2012-13 and we do anticipate around Rs 40,000 crore to come from that.
Gopalan: There is also other spectrum, supposed to be auctioned. There is also spectrum used by the information and broadcasting ministry. Some spectrum is still available in the 2G area, which was supposed to be auctioned this year. We have made a very conservative estimate, taking into account all this.
With buyback and other options now available for disinvestment, will there be more state-run companies taking part in disinvestment in 2012-13?
Khan: The buyback is only an enabling provision. It was already there under the Companies Law but the companies were not sure if they will have enough offerings from the shareholders in case they went for a buyback. Most of it was with the government and it was not clear which authority from the government will handle the buyback.
How will the negative list of service tax work? Will the railways be part of the negative list?
Goel: Only those services in which the government is not competing with the private sector will be kept in the negative list. In the case of railways, service tax will be levied only on first class and AC travels. Freight will also be taxed barring a few commodities. Various services provided by five-star hotels which were not taxed earlier, will be taxed now.