Dear Mr Finance Minister, …

Harish Bhat | Updated on March 14, 2012

Union Finance Minister Pranab Mukherjee addresses a seminar on Goodsand Services Tax, the introduction of which will smooth many wrinkles forbusinesses and consumers. _Photo: S. Subramanium

Made in India, like the Kanchipuram silk saris: It’s time to be proud of thislabel. Tactical moves can make our country a hub for global manufacturing.. Photo : Bijoy Ghosh

A marketer's expectations from the Union Budget

Respected Mr Pranab Mukherjee,

Last year, when you presented the Union Budget, you had sought the blessings of Lord Indra and Goddess Lakshmi. Your prayers to the deities of rain and wealth have been answered, substantially if not fully. India has indeed had good monsoons last year. Capital markets and gold, the two big drivers of Indian household wealth, have also performed creditably notwithstanding a challenging global scenario.

However, national GDP growth rates have declined to levels of 7 per cent, so the clear need of the hour is rapid growth. May I, therefore, request you to offer similar prayers to Lord Kubera this year. He is the powerful God of Wealth, accumulation and growth. Ensuring that our country returns to a rapid GDP growth rate of 9 per cent is critical to eliminating poverty, generating employment and spurring domestic demand.

A key foundation for rapid growth is confidence. Therefore, Sir, we expect your budget to be brimming with measures to enhance the confidence of Indian industry and consumers. Even in the midst of various anxieties, you must reassure India, with relevant global data, that we continue to be amongst the fastest growing nations. Given the size and strength of our domestic economy, and the relative stability of our banking system, you must also point out that even a possible Euro-area crisis can only have limited impact on our country. The rest of your budget can build on this confident note. This will go a long way towards removing niggling uncertainties which hold back investment and consumption.

I recommend, Sir, that you must also consider enhancing confidence by taking measures to leave some additional money in the hands of consumers. This is important because the lower-middle class and middle-class is hurting from inflation, and therefore deferring consumption of discretionary products. A good step here will be a decision to align personal income tax slabs with thresholds contained in the Direct Taxes Code. Income up to Rs 3 lakh per year can be exempted from tax, and the highest tax rate of 30 per cent can kick in at an annual income level of Rs 20 lakh, both of which will also help index tax rates to today's cost of living.

In addition to enhancing consumer confidence, you must spur the confidence of India Inc, as investments by industry are critical to driving growth, and confidence leads to higher investment. The single most important confidence-building measure which industry looks forward to is a definite roadmap for introduction of a national Goods and Services Tax (GST). Today, in the absence of GST, marketers are constrained to pass on high and non-uniform indirect taxes to consumers. Also, without a national GST code, some States are changing VAT rates and other levies arbitrarily, creating unpredictable costs for brands. On the other hand, GST will do away with such irregular and restrictive taxes, including octroi and CST. This important measure will also provide a more level playing field to law-abiding brands, which have to compete with local players who avoid a plethora of taxes with impunity today, but will find it difficult to do so in a GST regime.

Sir, I hope we can expect firm announcements about GST in your speech. NCAER has predicted that GST will improve annual GDP growth by between 0.9 per cent and 1.7 per cent, which is the lowest-hanging fruit on India's tree of growth.

Industry and marketers' confidence will also be raised significantly if you decide to once again pursue the matter of foreign direct investment in many areas, including multi-brand retail. This will also set the foundation for a modern marketplace in India. However, I am painfully aware that while your Government is in favour of this initiative, political compulsions of the moment may constrain any big move on this front. We can only hope that good economics triumphs over narrow political imperatives.

On the other hand, matters of fiscal policy including excise duty can be steered without any such constraints. While there may be a temptation to hike excise duty levels to raise revenues, we earnestly request you not to do so at this juncture. Marketers and brands are not yet seeing a return to earlier levels of growth, which is clearly indicated by the low single-digit manufacturing growth rates in the recent past. Any increase in excise duty will translate into higher consumer prices, and thereby lower demand, particularly in products where price elasticity is high. Also, higher consumer prices will mean higher inflation, which will in turn constrain RBI from lowering interest rates in the near future. As you are no doubt aware, the current high levels of interest rates, and their impact on EMIs, etc, are clearly coming in the way of consumer demand. Therefore, any increase in excise duty will go contrary to the larger and far more important objective of stimulating growth.

You may well ask, in view of all the above suggestions, where will additional revenues come from, to balance the budget and reduce the fiscal deficit? I would respond thus: Rather than raise tax or excise rates, it is far more preferable to generate revenues through auctions of 2G and 4G spectrum, through divestment in public sector companies, and, of course, through higher overall tax revenues on account of enhanced economic activity and growth which is indeed the big pot of gold.

There are some other important areas which I am confident will find a mention in your Budget. We must provide stimulation to sectors which have high employment potential – such as ports, roads, construction, retail – as employment creates a virtuous cycle of consumer demand and growth. In the specific case of the retail sector, I request you to consider providing it industry status. It will help ensure a consistent set of rules, as well as better focus on one of our most important consumer sectors.

Finally, many of us believe that the time has come for Indian manufacturing, driven by various developments in China and elsewhere.

A smart set of strategic moves propelled by appropriate policies can seize this big opportunity, and make our country a hub for global manufacturing. Last year, a manufacturing policy had been articulated by your Government, and I hope this year your budget breathes life into this policy by supporting enhanced infrastructure, by promoting the cause of products made in our own country. Brands and consumers should become very proud of “Made in India”.

Sir, I thank you for reading this letter. On a more relaxed note, should you wish to choose a quotation to end your budget speech with, here is a suggestion. These words originate appropriately from your native land of Bengal.

The incomparable poet Rabindranath Tagore says, in his poem Gitanjali: “Let all my songs gather together their diverse strains into a single current, and flow to a sea in one salutation to thee.” Similarly, may all the varying and complex strains of your Budget converge into the single current of rapid growth, because growth is the highest salutation that can be offered to the common man of India, for the sustained future prosperity of our country.

With respects from the fraternity of marketers,

Harish Bhat

(The writer is Chief Operating Officer - Watches & Accessories, Titan Industries Ltd. These are his personal views).

Published on March 14, 2012

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