What is your view on the big reforms and the announcements that have come in for the banking sector — a nationalised AMC for handling bad banks, stake sales in a couple of banks and an insurance company?
I believe this is a growth-oriented Budget and we are seeing next generation reforms. It is really transformative in terms of how we are thinking about India’s future. It reflects a confidence in India itself. Some of the points which CII had recommended were considering the privatisation or disinvestment in a few public sector banks; the formation of a Development Financial Institution and bad banks. The whole national ARC structure which the government is looking at, is going to be an aggregation of all the debt from the different banks and thereafter a process by which it can offer it to AIFs at stage II. That is a very positive way of cleaning up the financial sector. Also the whole thrust on growth, focus on key sectors which will determine India’s destiny — be it healthcare, infrastructure or financial sector — which can be geared to get India’s growth engine to a different trajectory.
I know markets in the short term are a function of sentiment and positioning, but do you think today markets are voting with logic and this is a growth endorsement from the stock markets post the Budget?
The markets are feeling very good about the stable tax regime and at the same time, there is a belief that we are putting money to work in the right segments and a belief that though we are going to be with a higher effective level of borrowings in the plan that the debt markets will support it and will raise the money and neither inflation nor borrowing rates will go out of control, it is this part of the execution where he government and RBI will have to work in close tandem to ensure that interest rates remain stable through this period.
The big idea is to get development infra financing back. Historically this idea has not worked. I am not getting into specifics of why but do you think that an idea which has not worked in the past, will work in future?
You have to look at some models which have worked like SIDBI and NABARD. Therefore the Development Financial Institution in infrastructure should get the right sort of platform, similar to what has worked in agriculture and rural on one hand and MSME on the other.
The key issue about a development financial institution working is its ability to get long-term fixed rate funding and the government will have to work on that the way they have done it for SIDBI and NABARD. However, this cannot address the issue which needs to be addressed separately where sovereigns particularly state governments must own a contract, because that is the key challenge in the infrastructure sector.
While the assumptions on GDP and tax collection look pretty reasonable, do you think the government is aggressive on the disinvestment front? I am not doubting the intention here but the process selling a government asset has never been easy?
The premise of this Budget is a significant mindset change and we have to believe that we will be able to get that mindset change converted to execution and the future of the success of this Budget which has really put out a very transformational framework depends on execution. We need to focus on collectively as both policy makers and practitioners.
What is your view on one big reform which one thought would be politically difficult to push through? The government has announced 74% FDI in insurance. What can this do for the financial services landscape?
It is a question of a very self confident India. We are now genuinely confident to allow free and competition between Indian and foreign ownership on the Indian platform with proper regulation. It is a signal to the world that India is ready for business and is no longer insecure but self confident about managing itself through a competitive landscape.
The disinvestment target has been set at Rs 1.75 lakh crore. There is also going to be an LIC IPO. Are you surprised with the target? Do you think it could have been higher?
If we do Rs 1.75 lakh crore in the next year, it will be a very strong and good beginning for a platform where we can do even more in the following years. Keep in mind, we are going with a higher fiscal deficit in 21-22 which we have to moderate and non-tax revenues are the way to handle that. Therefore we will need to raise money from privatisation, monetisation of operating assets, sale of land and also make sure that fiscal deficit is gradually coming back to normal. These are abnormal times and this Budget is appropriate for these abnormal times.
Where would you say the economy is headed? The disappointment is over. Are we in for a big earnings and a big economic surprise now?
I think there comes a time in the tide of a nation which if taken at the proper time, can lead to transformation of a nation. I think India’s time is now and therefore I would consider this as a budget of next generation reforms. I do not think we should be surprised. We should be out there supporting the change and transformation which India needs. India is a large country with a huge population, many of whom we need to make far more inclusive and we have to increase the size of the cake and distribution along the way. This is a game plan for getting the size of the cake up and we can go all out and make the size of the cake larger.
