Seasoned banker Naina Lal Kidwai says the issue of minimum alternate tax needs to be tackled amicably and fast, even as she sees full convertibility of the rupee as a 10-year programme.
In a freewheeling interview to IANS in New Delhi, the executive director of HSBC Asia Pacific also says a lot can be done on ease of doing business in India and that companies have started making plans for fresh investments. Excerpts:
IANS: What has been the impact of retrospective levy of minimum alternate tax on foreign funds? Has it caused a negative inflow of funds into the Indian market? Has it also affected country’s image?
Kidwai: Initial announcement created a lot of negative backlash and the government then stepped in to say it would review it. That is a process that I believe is currently underway. The assurances that the finance minister (Arun Jaitley) himself made brought a lot of comfort to the institutional investor community.
So, I do hope the resolution on MAT is one that meets the expectations. It has to be done quite quickly and I hope in the next couple of months, we should have an outcome on this. In the interim any demands being made need to be held off so that there is resolution of the issue, in a manner which is acceptable without interim demands building up.
IANS: There are complaints over too many barriers to doing business in India. Has any progress been made in ease of doing business? What steps are required?
Kidwai: The government is very conversant with what needs to be done. The reason for why we are very low down on ease of doing business (ranking) is contract sanctity. Contracts are not adhered to. People have scant regard for contracts. That can be both government contracts and regulatory contracts. We saw that problem with coal, spectrum – the re-bidding that happened despite contracts having been awarded. All of these generate concern for the industry.
This is also about cleaning up the paper work and making sure our courts move expeditiously and quickly. Adherence to contract should be sacrosanct. These are the low hanging fruits. Second area is: How the Centre and states engage with each other. A lot of the issues typically reside at the state level. Centre and states should work hand in hand. States should compete to attract better investment.
IANS: Do you think the environment today is congenial for investment?
Kidwai: I think it’s a congenial environment. Green shoots are visible. I think it has gone beyond wait and watch for the industry. Companies have begun to make plans to invest. Some are beginning to invest. Surveys show that. But the real investment will only come in when demand picks up. Capacity surpluses still exists across industry segments. It will still take a couple of years because we have to see demand and capacity utilisation to go up. But investments in infrastructure, government expenditure and all of that need to happen today. That need not wait. Infrastructure investment has a multiplier effect.
IANS: There has been a debate lately on full convertibility of the rupee. Is it time now to act on this?
Kidwai: Rupee convertibility is something that happens when your fiscal is in good control and we are getting there. We are not quite there. We have a direction, which we have set. As we go forward, we have to contain the fiscal and to do that when the revenues are not really buoyant, as in the case now and will remain so till the goods and services tax (GST) regime rolls out, which will prevent a lot of leakage in the system.
It’s time we brought convertibility in time. As we emerge as a larger economy and have the ability to trade in our own currency, it is something we need to aspire for. I would see this as a 10-year target for complete convertibility. But the process begins gradually and we should well see action in this regard in the next two-three years, which will set the direction.
IANS: Are the steps being taken to curb black money enough? What should be the government’s course of action in this regard?
Kidwai: The government has embarked on all the right things. We have got a bill. We need to ensure that our revenues go up and for that to happen we need to ensure more and more people come into the net. Across sectors, across industries, across different types of professions, we need to be able to pull in revenues for the country. There is no point going on hitting the same people for tax. Just because you are a taxpayer, you keep coming under scrutiny. It is ridiculous.
With a wider tax net, we can have funds to spend on all the things – like on infrastructure, on programmes for (alleviating) poverty. If we remain in the same place in terms of poor collections – this applies to both corporates and individuals — we will never be able to get out of the cycle of not having a fiscal deficit, which ideally should go into a surplus.
(Aparajita Gupta can be reached at [email protected])