Q: You spoke about the distinction between the trader and investor, there is one view that they might get back on the capital gains away from STT and phase it out over a period of time that would be an immediate negative for the market?

Jhunjhunwala: I have some idea what kind of selections they make through capital gains and their STT collections are far higher than what they collected in capital gains. I see no reason why they should do that and STT has such ease of collections, there are 500 brokers in India who are paying to the government — so I think it’s the most unlikely step and the market may not like it if it’s done. The economic survey talks about dividend distribution tax, there they will make further liberalization as if to reduce the rate or maybe they will allow for deduction in one company which sees and pays dividend. Now it’s only applicable when you receive from a subsidiary, and even non-subsidiary income will be allowed in the deduction of dividend tax.

We are always focusing and market is reacting fundamentally, as I know in life with direct tax changes, I am not looking at the budget from that point of view at all. As a trader, I look at things as to what do you say short term, the question is that if this government mandate is going to mean anything, you have to have higher growth. And the only way you will have higher growth is by channelizing investment, what are you going to do in the environment ministry: someone wants to put a USD 11 billion project in Orissa, it can’t be cleared for three years, some 500 people protest and people are afraid. You can’t put up any project in India because you can’t acquire land, 5% of people own land and 95% are landless. So we should start resolving issues that effect investment — that is something I will look for. I was reading Mr. Palkiwala’s note and he says that — he is an Indian ambassador for US — he says if you release NRI economic activity in India, India will have a world power and dictate that and I agree with them. So the important thing is that and I will look at the budget that after all it will give some communication and resolve or the intention of what they are going to do.

Q: Let me ask you about FDI because these have been the magic words — disinvestment, FDI, STT — and the budget will be judged on those parameters. Do you think there are price positive surprises or disappointment instead on that front?

Prakash: I am not sure. People expect, I think that is for whatever reason this has become a hot button in India. Yashwant Sinha, the former finance minister, said [it will be] between 26% and 49%, frankly what is the realistic difference? Given that in press note two and press note four, you can find all ways to get to 74-80% whatever number you want to directly or indirectly so why is it such a political hot potato whether 26% or 49%? I don’t think you are going to see much of FDI. I tend to be more skeptical that you will see significant limits being raised in insurance or retail or the other things.

Q: Not even insurance you think?

Prakash: I don’t think it will come in the budget. Even if it does happen, I don’t think it is such a big issue. I have not been a fan thinking that the insurance industry has been held back for growth because 26% FDI limit cannot go to 49%. Insurance can anyways be run by Indian management. I agree with Rakesh that there are a lot more important things than FDI that the market or the retail should worry about.

Q: Do you agree?

Jhunjhunwala: We know that the Indian insurance companies are essentially losing cash and profits and they require constant investments. The Indian entrepreneurs have a limit on investment. There already are ways in which foreign owners can put in money and raise their stake above the limit. So we might as well allow it.

However, I would do it in a measured manner. I would allow FDI in all areas but do it in a measured manner. I think [the government should] raise it in defence, in retailing.

Also, about the concept of a foreign institutional investor (FII), I mean, who’s an FII?

Any person who is not a citizen of an enemy state should be able to fill in a KYC form with a designated bank and invest in India. I think Sebi’s job will become much easier. And the economic survey talks about it.

Then, they must pass the pension regulatory bill. Reasons: first of all, the guaranteed return the state cannot give. It has to go back to the employee. Second thing is that the way the government pension liabilities are mounting in the revised scheme under the Pension Provident Fund Act, the government employees will get a provident fund contribution. So for them the government’s pension liabilities will be frozen. My father died last year, he retired in 1986 and was getting a pension, which was four times his last drawn salary — after one third of it was commuted and my mother gets a family pension, which is higher than my father’s last drawn salary.

So the kind of liabilities that the government has is unbelievable. I think these three things they must do: pension, insurance and to allow anybody to invest in India.

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