Mohit Ralhan, managing partner of Indus Balaji Private Equity, says any measure that changes the confidence of FIIs built through the efforts of the last few months can have a serious negative impact.
Given the current challenges, what, in your opinion, would make a good budget? What measures or proposals would you like to see?
At present, India needs balanced growth to bridge the urban and rural divide. The government effort should be towards direct subsidisation for people below the poverty level. It should increase labour and capital productivity by creating a conducive environment for infrastructure development. Dependency on foreign capital should be reduced by improving the savings rate through efficient management of inflation. The focus should be on human development and raising the standard of living by increasing allocations to education and health for long-term benefits, i.e., increase in potential GDP and per capita income.
Some of the actions required are:
a) An impetus for long-term money through FDI in infrastructure
b) A push for long-term capital through pension reforms
c) Improvement in retail confidence to channelise investments in equities as an asset class
d) Improvement in capital efficiency in the agriculture value chain by investing in passive infrastructure
e) Have direct and transparent subsidy transfers
f) Implementation of GST
g) Opening up of sectors such as insurance and banking further
Given the constraints the government faces in raising revenue, do you see a case to increase income tax rates on the rich?
If taxes increase, discretionary spends and savings will go down. This will reduce investments by the wealthy and hence effectively have a negative impact on GDP. Also, an unstable tax regime will impact long-term capex planning. Since we have a current account deficit economy, the government's ability to invest is in any case limited. The biggest push towards investments can come through savings, which will be compromised in case of a tax increase.
Again, in economies where unemployment rates are upward of 15 per cent, any increase in taxes will lead to a further potential increase in unemployment. The need is for transparency and effective implementation of the tax structure and implementation of initiatives such as GST.
If the budget does not meet expectations, do you fear that business sentiment would once again dip?
Given the twin deficits, which are currently getting mitigated by significant FII inflows, any measure that transformationally changes the confidence of FIIs built through the efforts of the last few months can have a serious negative impact.
Specific to your sector, what could the current budget do to improve conditions?
Clarity on GAAR has already brought a lot of sanctity to private equity investors. Further clarity on tax treaties will go a long distance.
Which budget, in the recent past, do you remember as having been a good one?
The current finance minister has delivered transformational and balanced budgets in the past.