Q: I want you to scratch on that point a little deeper — painting on social and rural scheme because the market’s habit is to start sighing and groaning every time it hears that more money is being thrown in that direction, they will say budget expectation will go out of hand again you doing a socialist budget, populist budget but do you think that will be done and maybe it is not such a bad thing either for the stock market?

Prakash: I think it is going to be done and the political environment in India is such that right or wrong — I don’t think it is necessarily all bad in a sense that the issue is not the money going to the social sector scheme, the issue, the perception is that a lot of that money is getting wasted. It is not targeted, it is leakage, it is pilferage there are a whole bunch of issues. I think the President’s speech was notable but for the first time they are talking a lot of accountability, they are setting up - in Prime Minister’s Office (PMO), Dr Baru is coming to run this programme monitoring unit, we will see - that is the intention, Mr Nandan Nilekani is coming for this ID scheme, all these things take time. I think the problem the market has more than the money itself is the perception that all the money is getting eaten away by corruption and pilferage and leakage that is number one.

Secondly, how will you raise that money? I don’t believe that you can have 10-12% fiscal deficit, it is not a sustainable basis, it will affect the government’s willingness to agree to invest in infrastructure, a whole bunch of similar people who have talked about for donkey’s years. So the question is how will you fund that? I think there are two ways of funding it. You can do it with things like disinvestment, goods and services tax (GST) and second is you have to get back to 8-9% growth because if you assume for the moment that because of the politics in India, the money is going to go to the social sector schemes, you have to get back to 8-9% growth because without that we are running into a fiscal crisis very quickly. So my working assumption is that the money is going to go to social sector schemes, look at targeting and less pilferage and look at rational ways of how they are going to raise the money and everyone has talked about GST, disinvestment but more is infrastructure investment getting us back to 8-9% growth. My working assumption is that money is going to go.

Q: Do you have an out-of-the-box idea for infrastructure which is the area that everybody is talking about?

Jhunjhunwala: First I want to talk on the subsidies. I think as an Indian we have to accept the fact that the level of poverty at which large part of India lives, there is need to subsidise them and there is need to look after. I have two four year sons, if I am not able to feed them, what will I do, I will turn into naxalite and there are situations like that in India at large places. So let us not forget that we have to contribute to those people. I think the better way to contribute is — I don’t grudge it, but what I grudge as a tax-payer is that money is not well spent — so my suggestion to the government would be to club all subsidies. You club food subsidies at Rs 50,000-60,000 crore, fuel subsidies Rs 30,000-40,000 crore, national rural employment scheme Rs 70,000 crore, fertiliser subsidies Rs 50,000 crore. Let us go below the poverty line. The eldest lady in the house should get Rs 50-100/month. So all mispricing will change, you will have education, schools — you pay Rs 16,000-20,000 to teachers to teach in schools in rural areas, they never turn up. They pay someone Rs 5,000 and that person teaches there. All this mispricing will change and there will be direct transfer and everybody will have choice, they can divert the amount, someone’s priority is food, someone’s priority maybe house. I think that is what we should do. But we have to do it.

Regarding infrastructure, there is surely a need for government to incentivise risk taking in infrastructure. If today I put up an infrastructure project or invest, our biggest problem is not only debt but equity. Today you look at the way the infrastructure companies are constantly diluting and there is no way, they have to dilute. So to enable them to raise capital, only if we have equity, we will have debt. So I think government can give some tax incentives for investments. Under that scheme if we will have one lakh deduction every year, government can say you can give Rs 25,000 extra provided, it is invested in infrastructure companies and then lay down the criteria.

I think that will bring a lot of equity to these companies and that way they can also provide incentives for investment in infrastructure projects. That is needed in my opinion.

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