Face to Face with Mr. Kanu Doshi for his views on Budget 2012-13
Apr 07, 2012

Author: PersonalFN Content & Research Team

PersonalFN is privileged to bring to you Mr. Kanu Doshi - Partner with Kanu Doshi Associates, Chartered Accountants and Dean (Finance) at Welingkar Institute of Management Development & Research

In an interview with

Quantum Information Services Pvt Ltd (PersonalFN)

Mr. Doshi shares his view on Budget 2012-13.


1) PersonalFN: Let us begin by asking you; personally are you satisfied with the Union Budget 2012-13, and what in your view are the positives in this budget?

Mr. Doshi: No, I am not satisfied with the Budget presented by Mr Pranab Mukherjee, and the reason are he could have taken the benefit of 2012 as the year, two years ahead of the general elections. Be that as it is, this was one wonderful opportunity where he could have really done something without being worried about elections and aam aadmi. He could have ignored political considerations for better economic measures.

What are the positives? - In my opinion there are almost none.

2) PersonalFN: Do you think that the budget has given enough consideration to the problem of fiscal deficit and reform measures?

Mr. Doshi: While that the Finance Minister (FM) has specifically mentioned it, but unfortunately what he has indicated as fiscal deficit of 5.1% will be extremely difficult. He has set for himself a target which is impossible to achieve. He will end up at 5.9% or 6.0%, the way expenditure is galloping.

3) PersonalFN: So given that what you said, what according to you are the negatives (if any) of this budget - what has it failed to bring out?

Mr. Doshi: It has failed to generate any reform for encouraging business people to set up their business or expanding present ones.

4) PersonalFN: Any particular sector you have in mind for which they have not catered to?

Mr. Doshi: Yes, he could have done lot more on infrastructure sector by making available, first of all funds. Funds are a major bottleneck of the sector. Except raising limit to Rs 60,000 crore (from Rs 30,000 crore last year for borrowings by the finance institutions) but it may not be fully subscribed. The banks do not have money to lend to Government of India so who will subscribe to Rs 60,000 crore issuance. There is lot of wishful thinking which has gone in framing this budget.

5) PersonalFN: On one hand Mr Pranab Mukherjee increased the exemption limit by Rs 20,000 and on the other hand kept silence on whether the 80CCF benefit (wherein the individual tax payer can claim tax deduction of upto Rs 20,000) will prevail in the FY 2012-13 or not; Thus it seems that there was no intention to give benefits to the individual tax payer but rather a step to move closer to the DTC, your views…

Mr. Doshi: Deduction under section 80CCF has lapsed because the section was operative till 31.03.2012. Yes, tweaking it is a step towards DTC. Tax saving is Rs 22,660.

6) PersonalFN: Can you throw more light on the Rajiv Gandhi Equity Scheme, its purpose to be introduced despite the ELSS being one of the tax saving option available in mutual funds? By attracting new first time investors towards directly investing in stocks, will it not be more risky than what they could by investing via mutual funds?

Mr. Doshi: First reaction is that the Finance Minister wants to give a fillip to the capital markets. He has used the expression ‘Rajiv Gandhi Equity Savings Scheme’ (RGESS). In other words the scheme will be only ‘equity’ driven and we as investors, as tax payers will not be able to enjoy this relief if we are not first time investors because we must not have any demat accountand finally we should have an income below Rs 10,00,000. There is no clarity at the moment on what kind of shares will be eligible to, will it be only IPOs. So my fear is that this is likely to be grossly misused by dishonest promoters and market intermediaries. I will tell you how it will operate. So, bogus public listed companies will come to the market.

By this very definition of RGESS, I should not have been an equity investor and my income should be less than Rs 1000,000, and therefore I am an ideal thoroughly ill-informed investor. An ill-informed investor is most gullible. So the dishonest promoters, will come up with an IPO saying that to save your taxes subscribe to their IPO. Poor guy will save Rs 5,000 under new section but will lose Rs 45,000 because of the ‘fly-by-night’ promoter.

I do not know what held back FM to say that this scheme which will be managed and implemented by mutual funds. Mutual Fund industry is a well regulated industry today. Ever since it has started, I am not aware till today single mutual fund having failed. Full marks for that. Full marks to SEBI, that it keeps such a vigil on the industry, that there has never been a payment default. It is a very risky proposition.

7) PersonalFN: Do you think RGESS will bring money to the capital markets?

Mr. Doshi: If a concession is to be given for investing in equity markets it should have been given to all. Why such restrictions like first time investors, why only for those having income below Rs 10 lakhs. It is difficult to fathom the rationale for this and it so easy to fathom all the possible pitfalls. In short RGESS will not boost the capital market. Similarly reduction in STT is welcome; however it is too little. If you have seen, stock markets have ignored both these commissions and registered a fall in SENSEX after the Budget.

8) PersonalFN: Will the exemption on interest earned on savings bank account upto Rs 10,000 enthuse people to save more and spend less? Will It also make things more transparent?

Mr. Doshi: I believe yes, it is a step in the right direction. It is a deduction under section 80TTA. It will certainly enthuse people to save more and is therefore welcome.

9) PersonalFN: Do you think the complete abolition of TDS for Senior Citizens should have been addressed to in this budget?

Mr. Doshi: It would have been ideal, but here the problem is this abolition of TDS for Senior Citizens could be abused and lead to evasion of tax. TDS has the advantage of monitoring the person from whom the tax is deducted at source.

10) PersonalFN: The targeted GDP growth rate at 9% (within a range +/- 0.25%) as estimated in Budget 2011-12 has been grossly under-achieved. Do you think that the estimates for 2012-13 (which is 7.6%) and subsequent for 2013-14 (8.4%) are realistic given the global risks as well as domestic risks?

Mr. Doshi: In my view both these figures are unrealistic and that they will not be achieved if the Government continues to manage the economy, the way it is managing it today with scams galore. Effect of the scams is that so much money goes out of the productive system. And if such ill-gotten money goes out of India, it is still worse. Such money is lost to Indian economy for ever and benefits the economy of the country receiving the money. Prosperity in Switzerland can be attributed to India’s money with Swiss Banks.

11) PersonalFN: On the indirect tax front, the increase in the Service Tax rate to 12% from 10% will increase flows in the Government’s kitty; but in this bargain will the aam aadmi be burdened with high prices?

Mr. Doshi: Yes, I am wholly in agreement with this reasoning that the burden of high prices will be largely felt by the aam aadmi. The Government in order to boost its revenue has thought it fit to raise it from 10% to 12% but it will end up with a lower GDP growth and in the end Government loses out on the benefits of buoyant economy. On one hand most of the world is reeling under the slowdown and we have not yet fully come out of it though we came out of it fastest - reason is domestic demand but now with this increase in service tax and excise, inflation will go up and if inflation goes up people will have less money therefore people and growth suffer; so not only will the aam aadmi will be burdened with a higher cost of living, but the savings and industrial growth itself will suffer.

12) PersonalFN: Do you think not giving specific dates for the implementation of DTC and GST indicates that they might miss the April 2013 date too?

Mr. Doshi: I agree that the FM is not sure of dates of DTC and GST will be delayed beyond 2013.

13) PersonalFN: Do you think the increase in the import duty on gold will affect its demand from retail consumers?

Mr. Doshi: No and the reason is most of the gold is purchased in unaccounted form from unaccounted money. The Government is aware of this; that is why apart from raising the import duty they have brought in a provision of TDS even for gold purchased in excess of Rs 200,000 in cash. These two provisions have had no effect on gold prices post budget.

14) PersonalFN: What have been your other expectations from the budget, which of these have been met and which not?

Mr. Doshi: FM has advanced with the negatives in DTC like GAAR (General Anti-Avoidance Rules). The good provisions in the DTC which I would have preferred in this Budget, are across the board exemption limit of Rs 200,000 and the bracket of highest marginal rate of 30% to operate on income over Rs 2500,000. Abolition of education cess and surcharge on corporates could have carried out. I strongly believe nothing worthwhile has happened from the money collected as education cess. Countless schools have no students and in many schools there are no teachers.

15) PersonalFN: How would you rate the budget on a scale of 1 to 10 (10 being the highest)?

Mr. Doshi: I would rate this Budget at 3 on a scale of 10.

PersonalFN: Thank you so much Sir, for your precious time and insights.


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Jan 07, 2015

This is a neat summary. Thanks for sharing!

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