The Hindu Business Line : `Exchangeable bonds will unlock value for corporates'

`Excise duty was cut for small cars last year. Why should I cut excise duty for large cars? They (large car manufacturers) are doing well, are producing more cars and are profitable.'

The Union Finance Minister, Mr P. Chidambaram

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New Delhi Feb. 28 The Finance Minister, Mr P. Chidambaram's fourth Budget under the UPA regime came in the backdrop of strong economic growth though coupled with concerns on rising prices. The capital markets, which was on an extended bull run till recently, appears to have a given a thumbs down to the Budget proposals. In an exclusive interview with Business Line, Mr Chidambaram felt that international developments on the day might have also been partly responsible for the slide in Indian stock indices.

In your press conference earlier during the day you have mentioned that the Budget places no extra burden on the corporate sector. Yet the Sensex has tanked over 500 points today. How do you explain that?

Internationally, the Chinese market went down 10 per cent before rebounding 3.5 per cent. Wall Street went down 3.9 per cent, Dow Jones went down 3.3 per cent, Nikkei opened down and European markets have opened down. So, it is a global decline and some of it is reflected in India. Some of it is perhaps the corporate sector's reaction to the Budget. It's okay. Markets will go down, markets will go up.

Can you elaborate on the proposal of permitting Indian companies to unlock part of their holdings in group companies through exchangeable bonds?

These are "exchangeable bonds". Today, when a company issues convertible debenture or bond it is converted into shares of that company. World-over there is a bond called exchangeable bond where a company can issue its bond but on conversion it can issue shares of a group company. There is an issuer company and an issued company. Earlier, two people were making a contract. Now, there would be three people making the contract — the issuer, the subscriber and the issued company. Therefore, this bond when converted would get you the stock of another company that belongs to the group. It would help corporates to unlock value in the group.

You have said PAN would be the sole identification number for all participants of the securities market. Does that mean all other SEBI initiatives of having other identification numbers such as Unique Identification Number (UIN) would take a backseat?

I said that PAN would be the core number but you can add a prefix or a suffix. They will alter their number. Whoever is issuing an identification number to the capital market would have to adopt PAN.

On CST compensation package there is no mention of what will happen to the 77 services. Can you throw light on this?

This year, whatever service tax we collect on the earmarked services, we will collect it and pass it on to the States. Next year onwards they will collect that services assigned to them.

You have introduced dual taxation on cement excise. Is it not an indirect price intervention by the Government?

No. No. We are trying to moderate cement prices that I think have risen quite unnecessarily. Last year they were selling cement at Rs 190 per bag. There is no reason why cement prices should have shot up so much in one year.

A major sector that does not find a place in the Budget is the automobile sector. Why have no new measures been announced for the sector, maybe reduction of excise duty on large cars?

What is there to do for measures? Excise duty was cut for small cars last year. Why should I cut excise duty for large cars? They (large car manufacturers) are doing well, are producing more cars and are profitable.

On financial sector reforms, how hopeful are you for pushing through measures such as hike in insurance FDI and pension reforms?

The pension bill has already been placed in Parliament. It has already been studied and reported by the Standing Committee. Now it is for the parties in Parliament and the leadership to discuss and pass those Bills. I would like those Bills to be passed.

When do we see consolidation among state-run banks?

Consolidation is an issue that is not to be addressed by the Budget. We have already made it clear that consolidation in the banking sector must come from the management, with the full cooperation of employees. It is for two banks to come up with consolidation proposals.

Have you received any proposals?

Not yet.

More Stories on : Interview | Corporate Bonds | Budget

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