Cautiously optimistic

Expert view...

Pratap Bose

The Budget is being awaited with a sense of what I call “hesitant optimism”. While pundits in the advertising business are bullish on the future health of the Indian economy, I notice there is hesitancy on their part to be buoyant given that the US economy does not echo the same confidence as India does. The recent US sub-prime crisis and corrections on the Indian bourses have wiped out the radiant confidence, which was apparent till a month ago.

Despite whatever the media have to say, India is indeed a poor economy. We might be growing at a 9% GDP growth rate but that still does not mean anything to someone who is taxed at 31.5 % at an income slightly above 2.5 lakh. Incidentally, that figure is about the entry-level salary for most big advertising agencies as well. There have been submissions to the finance ministry to revise the basic exemption limit to 1.50 lakh but that in my opinion should already have been done years ago.

A few years ago there were huge industry debates about the calamity of service tax and how this would completely cripple the advertising industry. Today we have accepted it as a part of conducting business and it hasn’t really stopped growth in any way. I only hope that the level is maintained.

Services, which account for 50% of our GDP is always going to be the obvious target for any finance minister. I would be happy if the service tax net is cast wider, but not increased. Which brings me to the biggest irritant of them all — the fringe benefit tax or FBT. The rationale for levying the FBT on the employer lies in the inherent difficulty in isolating the “personal element” where there is collective enjoyment of such benefits and attributing the same directly to the employee.

This is especially so, where the expenditure incurred by the employer is ostensibly for the purpose of the business but includes, in partial measure, a benefit of a personal nature. This to me is akin to digging for gold in an abandoned South African mine.  Surely there are better ways to tax corporate India and I would be delighted if this could be done away with. I say this not because I am not in favour of it, but because it is far too complex and fraught with so many interpretations that don’t make it worthwhile in the long run.

We hope that P Chidambaram keeps this sector ringing. Huge investments have been made and even bigger commitments are in the pipeline and so I hope the tax structure is simplified. A reduction in the import duties for mobile components would be welcome. All this would augment us in the advertising arena, as telecom is certainly a key factor in our growth as well.

In a very broad sense, the advertising industry is looking for a budget from Chidambaram that continues to fuel growth and continues to makes India’s economy a very attractive investment destination. If India Inc wins, advertising wins as well.

The author is chief executive officer, Ogilvy & Mather