Q: Any ideas on infrastructure?

Prakash: I just want to make an additional point is that the one thing that does concern investors is what Mr. Jhunjhunwala is talking about is the feeling that is partly global but even more in India that a big government is back in the sense that you want to influence this food security act in the sense that you want to implement food security. Food security is likely to come with what 35 kilograms of rice and wheat below Rs 3. Instead of doing what Mr. Jhunjhunwala suggests which is doing food coupons or income transfer, it seems a desire to build this big public distribution of foodgrain infrastructure, which the government historically has never been doing.

I don’t think anyone grudges the money going to the social sector schemes. It has to be better spent and raised in a way that doesn’t compromise the long-term growth prospects for India. The concern among investors is that this money will go and it will go with making government bigger. In India’s history till now the government has not been very effective by and large in implementing schemes of this type.

Jhunjhunwala: Today, it is my personal prediction and I reserve the right to be wrong, that after the industrial revolution for the first time I think, in the next decade and years to come, farming is going to become an extremely lucrative business or an occupation because if India and China and Brazil have to grow where are you going to get the food and the shortage of water and arable land.

India’s yields are far lower than even Pakistan’s. So, let’s not look upon agriculture as a subsidy. Let’s have an attitudinal change. How can we make agriculture profitable? You are the largest producer of vegetables and fruits. They are not processed, there is no value add. Let’s consolidate land holdings, allow corporate agriculture.

So, I think there what the government needs is going to be an attitudinal change. Let’s allow interstate movement of grains. Let’s free the agriculture sector from all these kinds of controls. If any politician’s largest constituency lies in the rural areas, I think having that mind and changing those attitudes over a period of time and if they have elections after five years, I think it can really pay for the Indian economy and to the people living in rural areas.

One thing I want is in power because if we don’t have power, I’d say the only reason why there is only one civilised place in India and that is South Mumbai where you’ll never have a power cut. It’s part of civilization.

Otherwise you go to Delhi or any other place, the infrastructure will be very good but there are power cuts.

Q: What will the market’s decision on the budget hinge on in your eyes? In the market’s eyes, what will make it a good or a bad budget from all that you have discussed?

Prakash: That is a tough one. It’s very difficult because it is not very clear what the expectation in the market is. In the market, people are right now a little confused about what to expect. If you ask me, I think one is clearly the desire to move ahead on GST. Number two I personally feel they have to give a roadmap and show that they are concerned about the fiscal deficit and not believe that the fiscal deficit is 12%, doesn’t matter the world is 12%. There is a genuine school of thought developing that who cares. If the world is 12% we are 12% who cares. I don’t subscribe to that view but there is a strong minority that doesn’t make a difference.

Q: So, GST and fiscal deficit?

Prakash: The other thing I would say is that instead of cutting of taxes — I don’t think that is realistic and going to happen — I would much prefer rationalisation of taxes. Sunset all these clauses, there is excise benefit, and a lot of other things. Just clean up the tax code, and make it one simple to the extent possible, simple rate of tax, 35% and get our effective tax rate up. Effective tax rate of corporate India is 21%. So, I don’t know what corporate India is complaining about. It is not that they are paying 35% tax.

If you go back and see, the productivity of excise, revenue buoyancy is very low. It doesn’t even match nominal GDP growth because of all these benefits. What I would prefer to see is the cleaning up of the tax code, let there be 35% of the effective tax rate and get the 21% up to 27-28% of effective tax rate for corporate India.

Q: What will the market’s verdict on the budget hinge on?

Jhunjhunwala: It is very difficult to say. I don’t think it depends so much on – of course if he comes out with a surprise of raising taxes, which I don’t rule out, I’ll give a 5-10% chance to it — apart from that, it is more a statement of intent more than anything else. What are they going to do in terms of the reform, GST? I believe it is a difficult budget to call. The markets have been buoyant but there have been no expectations. But Mamata Banerjee’s rail budget was not bad. She did not reduce the fares.

If he reduces STT rates that will be a kicker if the budget deficit - my personal view is 6.25-6.5% it will be acceptable and it shouldn't go beyond that and also if he takes the fuel subsidy as part of the budget that will be very good because the government is responsible. So it will depend on a mixture of things. So that way it's a combination of taxes.

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