Focus on insurance, pension reforms: Rakesh Jhunjhunwala

BSE | NSE 10/02/12

The jury is out on what needs to be done when the finance minister, Pranab Mukherjee, rises to present the Union Budget for the year 2009-10. What does the stock market expect? What is it that will cheer market and may possibly egg it on more on its upward course? What is it that that disappoint the market, just when it has reached a crucial juncture, eager to pick up both cues - negative and positive - to determine the direction it will go into?

Trader and Investor Rakesh Jhunjhunwala said he does not expect much from the Budget. Outlining what needs to be done though, he said, "I think the government must do three things: regulate pension scheme, up insurance limit and allow anybody to invest in India."

"The only way you can get out of deficit is by growth. There is no way we are going to cut expenditure or raise taxes in a way that you can cut the fiscal deficit down to 5-6% or longer term," Akash Prakash of Amansa Capital said, adding that investors had realized that money would flow into the social sector. The implementation of GST was thus very important.

Also read: Budget: Time for govt to walk the talk, says India Inc

Here is a verbatim transcript of Rakesh Jhunjhunwala and Akash Prakash's interview on CNBC-TV18. Also watch the accompanying video.

Q: How are we going into this budget?

Jhunjhunwala: It is one budget on which I don't have an opinion. However, I am bullish. I personally think markets will go up after the budget depending on what their performance has been and the way international markets shape up. The one good thing that the finance minister did was not talk about it much. As a result, not much is being expected and everybody is approaching the budget with a sense of cynicism.

I read a story on Bloomberg that expenditure on social sector will go through the roof, so I think when markets exhibit this kind of strength - the rise from 2,500 to 4,500 has been one of the fastest I have seen. Still there is lot of cynicism about what will happen in the budget. So essentially people are not approaching it with the hope that it will be a market-turning event but the market strength is so high, it refuses to go down.

As regards with my expectations, I will try to bifurcate them between by expectation as a trader and my expectation as an investor.

Q: Do you genuinely believe that this market will be a firm trend decider in the medium term for the market: up or down?

Jhunjhunwala: If it goes up, it would just be a continuation [of the trend]. If it goes down, it will be a change in the trend. However, apart from the budget, international factors will play a role. The finance minister should at least make a statement of intent. Let me say what polices he should implement. We must implement GST by April 1, 2010. The government should have the attitude to get it done - if it gives the job to the consulting firms, it won't be done in four years.

On the tax front, however, I think the direct tax rates in India are absolutely reasonable. India is a tax haven in a lot of ways. So our expectation of any reduction in taxes, according to me, is unreasonable. The securities transaction tax (STT) is an entirely justified tax. Because the government levied STT because it made capital gains tax free, but for [former finance minister] Chidambaram to collect more revenue, first year for the trader - the person who is trading and not an investor - he was allowed to treat it as a tax break, a TDS sort of a thing. Now you only are allowed to deduct as an expense and that should be changed. It's all humongous demands -I see no reason why the benefit of 10A-B should be extended to software companies, so as Indians what they look for is how they have facilitated that to channelize investment. If you withdraw the tax on textiles are they going to export more? They will bleed less and they will pay taxes if they have income.

Q: What will the budget hinge on in terms of being a successful or not successful document, do you think people will focus on the macro, and is it the deficit or what is he trying to do with growth?

Prakash: The only way you can get out of deficit is by growth. There is no way we are going to cut expenditure or raise taxes in a way that you can cut the fiscal deficit down to 5-6% or longer term. So the way I look at it is: investors have accepted that there is going to be a significant flow of money into social sector schemes. That's the takeaway the Congress party has given right or wrong, so money will go, there are two things that more targeting of that money, the National ID scheme which will take two-three years, targeting of subsidies, below poverty line. So better use of the money is important. Then, where does all the money comes from: that is why GST is important.

Q: Would that be a terrible signal if he says GST is going to be postpone by six to 12 months?

Prakash: I think he should not postpone it because investors will then say: he is saying 12 months but it will be done after three years. So disinvestment is also important but there is limited appetite, there isn't enough capital available to fund corporate India and give the government Rs 3,000 crore so it has to be a package: GST, disinvestment. Also, the only way in my opinion India will get out of this fiscal deficit problem is by going back to 8-9% growth - if you are stuck at 6-7% growth, there is nothing which will solve the fiscal deficit problem because given our politics and the way things are, it is very difficult for the government to control expenditure and that has been proven for the last 15 years. It's very tough to control expenditure, so you have to get revenue and grow your way out of the problem.

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