Arguing that greater liquidity is the key to battling the ongoing economic downturn, Confederation of Indian Industry President VIKRAM KIRLOSKAR tells Subhayan Chakraborty that taxes on equity should be slashed. Edited excerpts
Industries have been batting for a fiscal stimulus. Do you agree?
We have told the government that fiscal deficit may be raised a little, so that more can be spent on infrastructure. I would prefer that the Budget deficit is under control, but now we need to expand expenditure, to get the demand going up. We should get back to the trajectory after one year or so.
Is there a realistic fear that if the fiscal deficit is raised, ratings agencies may cut our sovereign ratings?
I think we should be more worried now on creating more demand in India.
Considering CII’s 100-day agenda for the government was a suggestion to cut personal income tax rate for lower strata, do you think current income tax slabs should stay the same?
In our pre-Budget consultations with the government, we have focused more on dividend tax and capital gains tax, rather than income tax right now. After the reduction of corporate tax, I think we'll start seeing decisions on investments in India by foreign firms come together. We were competing for investments with in India or Thailand or Indonesia and suddenly find ourselves back in the race. But something similar should be done for sole proprietorships and partnerships as well. Everyone needs to be treated the same.
What about multiple taxes on equity?
While the government has cut corporate tax, we are still calling for taxes on equity to be reduced. First, you can’t grow the economy on debt. We already have too high a debt in our economy. On the other hand, equity is taxed at a very high rate. When it comes to putting equity in business versus putting debt, equity should be more important.
There has been an opposition from industry on the signing of new trade deals. What do you think?
No. We should have FTAs with countries that are good potential export market for India. This includes the US and Europe, where the maximum of our exports land.
What do you think about the argument that import duties in developed nations like the US and EU are already rock bottom, and India would be the one to have to lower duties and open its markets?
We have a trade surplus with them now. But they are closing the gap. So if we don't have a deal, they will look at our taxes and start raising their taxes on imports from India. They've already done that for steel and aluminium.
Would you think the same about the RCEP deal?
RCEP had a lot of issues, including on rules of origin and other non-tariff trade barriers that companies also felt should be properly taken care of. Until the government is satisfied that it's a fair deal, they should hold off on signing any deal. But they should continue negotiating since it's a huge trading bloc.