Finance Minister, Pranab Mukherjee, held a post-budget meeting with select members of CII (Confederation of Indian Industry), FICCI (Federation of Indian Chambers of Commerce and Industry), ASSOCHAM (Associated Chambers of Commerce and Industry) and the media to gauge industry reactions to Budget 2009 and to solicit suggestions on what should be enhanced. MagicBricks.com Editor, E Jayashree Kurup, reports:

Sajjan Jindal, President Assocham, spoke of how the rural spending had been driving the Indian economy for the last 6-8 months. Venu Srinivasan, President CII, spoke of how the budget was promoting inclusive growth and how 3 per cent of GDP had already been pumped into the economy from December 2008 to January 2009. He welcomed the weighted reduction on Research and Development as also the introduction of the GST from April 2010. Harshpati Singhania, President FICCI, asked for a road map on disinvestment and an indication of raising FTI limits later in the year.

In his opening remarks the Finance Minister indicated:
“I had no intention of rolling back what I gave in December 2008 to January 2009. India must come back to the growth path as fast as possible – not really in statistical terms but on the back of inclusive growth. Young India is eager to be engaged. It cannot wait any further and we as a country cannot afford to waste any more time. This budget I wanted to remove any uncertainties which will continue till the final stages when the Finance Bill is passed. Today there is a broad consensus among political parties on vital economic issues where the country’s progress is concerned.

Available indications show that the global meltdown will continue this year too. Tax receipts were on a downward curve but public expenditure needs to be boosted, especially in rural areas.

Manufacturing has posted slightly better results recently but I cannot say that we are out of the economic slowdown. Whatever was possible within the present context has been done. This budget reflects the government’s commitment to boost economic growth.

The government has spent Rs 82,000 crore more to boost demand for goods and services in the country. This was at a time when private sector investment was yet to come back to the pre-crisis era. We had to accept a fiscal deficit in the short term. The fiscal target for 2010-11 and 2011-12 has been pegged at 5.5 per cent and 4 per cent respectively. It will be my endeavour to reach the target within 7-8 months for which we shall have to work really hard.

Over the last 24 hours analysts, experts and professionals have made comments on disinvestment. I feel the budget is not the document that can set forth the disinvestment road map. We would like to encourage people’s participation in this disinvestment process.

The reforms agenda:
» We are moving towards a direct transfer of fertilizer subsidy to the farmers.
» We would welcome interactions from a wider cross-section of society in response to our Petro policy, where a lot of adhocism has taken place over the last many years. There is a tendency, I am told, in the global market to use liquidity to speculate on oil which explains the rising prices when the Western economies are yet to recover from the financial crisis..
» Problems of long-standing have to be addressed slowly.
» We had made a commitment to the electorate on reforms and in a democracy the electorate who voted you to power would expect these commitments to be kept.
» The high growth rates earlier have largely been due to robust growth by private industries which we would continue to look forward to.

Question and Answer Session:
FICCI questions:

Q 1. Will there be hurdles to the GST (Goods & Services Tax)? Will there be states that will not cooperate as in the case of VAT (Value Added Tax)?
FM. This is a problem. I have met with state Finance Ministers (FMs) and empowered committees of the states. It may be possible that GST may have the same problems that VAT encountered in the beginning. However, we need to start and want all to join. I think there is convergence on the larger national issue.

Q 2. SK Rungta, Chairman SAIL – We have implementation concerns on the infrastructure sector. Is it possible to identify 100 large projects of national importance whose progress could be monitored and bottle-necks identified and removed by an empowered committee headed, possibly, by yourself?
FM. I have suggested to the Prime Minister that he should head the infrastructure committee which becomes a standing committee with state representations. About 29 years ago, in 1980, there were serious infrastructure bottle-necks. The then Finance minister Mr R Venkataraman, invited representatives of premier chambers for advice to sort out the problem.

Q 3. Jyotsna Suri of Bharat Hotels – The hotel industry provides 6 per cent of employment and contributes to 6 per cent of GDP. It is the largest foreign exchange earning industry. However, it is capital intensive and has the most perishable commodity. Delhi alone lost 30 per cent of room revenue in the last few months. We are asking for a tax holiday for new hotels and an infrastructure status delinked from the real estate industry.
FM. We had considered this move but had found it difficult. However, let me revisit it again whether we can give some sales tax reductions.

Q 4. Shivendra Mohan Singh, Fortis Healthcare – We are asking for a priority status for the health sector. It needs $ 80 billion investment even to achieve WTO standards. In this scenario the tax imposed on plastic surgery will be seen as a regressive step as it is used in a lot of trauma cases as well as for medical tourism.
FM. Health services deserve a priority status. We are working on the specifics. Have to look into it. There is a massive requirement of health infrastructure for the common man. We have to understand what would be done for them and in what timeframe.

Q 5. Hari Bhartia, CII – You have indicated that infrastructure funding would be 9 per cent of GDP by 2014. Could you spell out a road map and the proportion of public and private funding?
FM. Our road map includes opening many sectors to public private partnership (PPP) in the infrastructure sector. This year Rs 100,000 crore was invested. The private sector was involved in cold storage, warehousing, roads through BOT, ports development and railways through special vehicles and PPP model. The problem is not only with creating assets but to maintain them. High grade roads are rendered unusable in 4-5 years because of lack of maintenance. Roads, ports and other types of facilities and urban and rural infrastructure will lead to growth. Urban demand, we know, leads to growth. But the huge rural population has different demands which also lead to growth. The demand is unlimited. The supply should be up to the mark. This will open a new vista for development.

Q6. Adi Godrej, Godrej Group – You have indicated that consumption oriented stimuli help come out of economic recession. Affordable housing can help accelerate GDP growth. We are asking for larger interest reduction on housing loan interest rates for retail consumers and a restoration of section 80 IB (10) benefits.
FM. We will look into it.

Q 7. B Muthuraman, Tata Steel – There should be an investment-linked tax incentive as India has a good potential for becoming a global hub for metals. There is a Rs 1,40,000 crore investment for steel and Rs 1,00,000 crore for aluminium. Can the incentive be extended to the metal sector?
FM. We have to identify the predicament in growth. The risk which we have taken in this budget has been in sectors with the highest growth potential in the shortest time possible. Agriculture and rural growth give growth in the shortest time span. Construction of a road, warehouse or cold storage can change the map of rural India and the masses are affected.

Q 8. Rajshree Patti, Sugar Industry – The NREGA (National Rural Employment Guarantee Act) has created massive shortage of labour locally. We need to encourage mechanisation of farmer and agricultural cooperatives. The sugar industry directly interfaces with farmers. A long-time policy needs to be evolved to safeguard this industry.
FM. NREGA’s basic approach is to provide jobs at site of residence - within 5 km. This discourages migration of labour. The labour market has a surplus and you have to make additional efforts to get labour. The demand driven scheme provides jobs as demand comes for afforestation, restoration of water bodies etc. The sugar industry’s demands will be looked into.

Q9. Swati Piramal, Piramal Healthcare – You have provided a boost for R&D. The pharma industry requires $1 billion investment to create a new drug and which takes 10-12 years. About 99 per cent of these R&D efforts fail. We want a tax credit as is given globally.
Primary healthcare needs dramatic change in policy to motivate PPP initiative.
FM. We have given a deduction of 150 per cent for R&D. We would like to expand it to the farmer industry. I must admit that your industry has proved that some of our apprehensions were misplaced.

Q10. Lalit Modi, Modi Enterprises – Private sector investment in the agriculture sector has gone down. Is there a PPP possibility here?
FM. Private sector investment in agriculture has gone down for some time now. We would like some details on how the PPP model can work here and would like to encourage it.

Q11. Balkrishna Dalmia – Infrastructure and agriculture would like the road map for disinvestment. You have indicated a preference for greater participation of retail ownership. The power sector has been deficient and cash incentives have been only on an yearly basis. We need long term incentives
. FM. The road map should be in the public domain. The Budget is not the appropriate place for disinvestment. There should be a public debate with all stake-holders. In the power sector, we must improve implementation in the private and public sectors. There is no reason why a 500 MW power plant should take more than four years to build. This is an area where a lot of solutions are needed as public assets are being wasted.

Q 12. RV Kanoria – Extensive government borrowing will crowd out a lot of funds available to the private sector.
FM. This aspect will be taken up. The private sector’s genuine challenge requires to be taken care of. The RBI has been monitoring interest rates. The year 2008-09 has genuinely been a very difficult year with prices sky-rocketing to 13 per cent inflation in the first half and dropping down to near zero in March 2009. The RBI has responded well to this volatile situation and we will look into what can be done to take care of and encourage investments.