'Budget 2013 should prop up business sentiment, increase capital spending'

Business Today's Suman Layak spoke to Zensar Technologies Vice Chairman & CEO Ganesh Natarajan on his expectations from P Chidambaram's Budget on February 28. Excerpts -

Q. Given the current challenges, what, in your opinion, would make for a good budget? What measures or proposals would you like to see?
A. Considering the backdrop of the economic slowdown, falling exports, slowdown in investments and reduction in job creation, the current year's budget should have measures that prop up business sentiment, boost exports and increase capital spending.



Specific measures would be to provide fiscal incentives for exports by way of exemption in income-tax /increase in duty drawback benefits, a simplified service-tax refund mechanism for exporters, and an additional depreciation/investment allowance for capital spending. It is all the more important that current tax rates are maintained and there are no increases in direct and indirect tax rates and no retrospective surprises.

Q. Given the constraints the government faces in raising revenue, do you see a case to increase income tax rates on the rich?
A. Over the last 20 years, India has moved forward from a regime of absurdly high income-tax rates (as high as 90%) to a moderate tax regime. This has significantly increased compliance and improved tax collections. We should not go backwards in simplifying and rationalising our tax structures.

The current tax rates and slabs should be continued. Already, the major chunk of income taxes are paid by people in the high-income bracket, and it is imperative that this source is protected and not disturbed by increasing the rates. The current tax base in India is still very low, which should be broadened. This will help in increasing revenue rather than increasing the rates.

Q. Please identify the cut-off in income beyond which you would classify the person as rich.
A. If, for symbolic, populist and political reasons the government has to increase rates on the rich, the cut-off income level should be more than Rs 1 crore.

Q. If the budget does not meet expectations, do you fear that business sentiment would once again dip?
A. The economy is still on the brink of a recession and business sentiments are low. Only in the last two or three months, proactive actions taken by the government through policy changes and decisions are showing signs of improving business sentiment. The government must not take any step in the budget that would hamper sentiment and nail down the recovery.

Q. Specific to your sector, what could the current budget do to improve conditions?
A. Information technology (IT) is the sector, which, apart from being one of the highest contributors to foreign exchange earnings, has brought India into the limelight in the world economy. The government presently faces falling exports, increasing imports, current account and fiscal account deficits, which seem to be getting out of hand. IT is one of the sectors that has high potential in increasing exports. The government should consider providing income-tax exemption to IT units that are in STPI (Software Technology Parks Of India - 10A exemption), do away with MAT (minimum alternate tax) for SEZ (special economic zone) units, and up-front service tax exemption for IT exports.

Q. Which budget, in the recent past, do you remember as having been a good one?
A. In the recent past, the budget presented in 2009 was a good one.