Budget 2003: Great expectations
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Budget 2003: Great expectations

What is needed is a responsive policy regime that will reduce transaction costs, enhance efficiency, invest in the social sectors and make India more efficient so that productivity increases, says Infosys CFO, TV Mohandas Pai.

india Updated: Feb 26, 2003 19:58 IST

After the first decade of liberalisation, India is, today, poised to take off towards the next level of growth. What is now needed is a responsive policy regime that will reduce transaction costs, enhance efficiency, invest in the social sectors and make India more efficient so that productivity increases.

Social sector:

Primary education and a national midday meal programme: Today, around 45 million children are not able to attend school. If we are not able to provide education, they would grow up to be illiterate and unproductive, and a drag on our growth. The government currently has a programme under which each child, who goes to a primary school, is given about 3 kg of rice/wheat per month. This should be extended up to class 10. The cost of cooking a hot meal per child is Rs 2 per day in addition to the cost of rice/wheat. To cover 12.5 crore children in schools across the country, it would cost about Rs 5,000 crore per annum.

These children should also get a good education and towards this the government has instituted the Sarva Shiksha Abhiyan to provide education to every child. I suggest an additional allocation of around Rs 4,000 crore for this. Along with the existing allocation of around Rs 1,500 crore, this would make a significant impact on India’s progress.

Primary health: I suggest a national health insurance programme to be instituted in consultation with the insurance companies. Fifty per cent of the premium could be contributed by the government and this money could be used by the insurance companies for building infrastructure and defraying the health costs of the poorer section. Assuming an annual premium of Rs 1,000 per family of five and a contribution of Rs 500 per family per year, the total cost to the government would come to about Rs 3,500 crore per year. This would revolutionise the healthcare sector and create a new impetus for growth.

Access to water: The government has an existing programme to provide safe drinking water to villages over five years. This programme needs to be accelerated and requires increased allocation of, say, around Rs 2,000 crore.

Higher education: Higher education should be liberalised by granting autonomy to our universities, IITs and IIM's and allowing private universities to be set up. A more liberal and cost- effective national student loan programe through the banks should be set up so that every student has access to credit for higher education. A national scholarship programme should also be put in place so that members of the disadvantaged classes and communities are able to pursue higher education.

Investment in Judiciary

The commercial sector is often bogged down by a slow legal process. India has only 13 judges per million population (the US has about 100 judges per million). As a result, courts take a long time to deliver judgments, tax arrears pile up in the courts, commercial disputes are not settled, and generally, respect for the law diminishes. Our legal system requires investment in greater number of courts, more judges and investment in IT infrastructure. An increase in the investment by around Rs 2,500 crore for this purpose is suggested.

Investment in Infrastructure

India needs to invest more in infrastructure, in improving logistics and in increasing efficiency. The State Road Transport Undertakings (SRTUs) are starved of investment. The central government should consider granting Rs 2,000 crore to SRTUs. This, along with a bank borrowing of Rs 2,000 crore, can be used to purchase 40,000 buses at Rs 10 lakh per bus. It would increase the SRTUs fleet by more than 20 per cent in one year and have a significant impact on the automobile industry, which itself is an engine of growth.

The railways are constrained by inadequate investment and, as a result, safety is a casualty. The railways estimate that Rs 35,000 crore is needed to complete pending projects. The railways should be encouraged to borrow from the financial markets when there is surplus liquidity and when interest rates are at an all-time low. This would allow pending projects to be completed in the next three to four years. I suggest that the government should give a grant for this massive investment at Rs. 2,000 crore a year for the next 20 years so that the interest on the borrowing can be serviced and capacity can be created urgently.

Our cities suffer from inadequate investment in roads, power distribution, drinking water and sewerage facilities. I suggest an enhanced allocation of around Rs 2,500 crore 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 per cent at an interest of 9 per cent, this would create an investment potential of Rs 55,000 crore. The interest subsidy could be phased out over five years so that the cities stand on their own feet. We need large investments in urban infrastructure to make our cities clean, attractive and improve the quality of life for our citizens.

Cost reduction

The interest paid on the special deposit scheme should be decreased from 9 per cent to 6.5 per cent keeping in view the lower interest rates in the market. This would save the government around Rs 3,000 crore.

There should be a cut of at least Rs 3,500 crore 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.

Tax Policy

In indirect taxes, excise duties be reduced to 14 per cent. 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 and not a slow reform process that deprives us of all the positives.

I suggest an increase in the service tax to 14 per cent, 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 and state VAT) to say 19-20 per cent over a period of time to make Indian goods more competitive.

An input VAT of 12 per cent (being the average rate of state VAT) on all imports, fully modvatable, should be introduced 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.

(The writer is Chief Financial Officer, Infosys Technologies Ltd)

First Published: Feb 26, 2003 23:00 IST