Ashok Wadhwa, Group CEO, Ambit Holdings, say that in this Budget the main highlight is on two factors. First on taxes, which has been a dominant topic of discussion for both the FIIs and global leaders of corporations and political leaders and secondly, the maths that will be worked out to bridge the gap between fiscal and current account deficit.
Below is the edited transcript of his interview to CNBC-TV18.
Q: You have seen many Budgets in the past. There is one fear though that, I mean with all credit to what the FM has achieved since September he may have already given his hand away in all these meetings to global investors or do you think he can still pack a surprise with what he is left in the bag?
A: If you look at the trend, the FM has already done a bit and he seems to be following a trend that, I will do what I have to do in the fiscal statement -- the Budget. The Budget doesn't have to be a big bang reform process and therefore I will continue to do whatever I can do outside of the Budget.
This time the focus on this Budget will be on two or three critical issues. For the first time, rarely in a period of 12 months the issue of tax has been dominant as a subject of discussion not only with foreign institutional investors (FIIs) but with global leaders of corporations and political leaders. It is on top of everybody's agenda post what happened last year.
Many things are done with the Shome Committee and Rangachary Committee, the FM needs to soothen all that by ensuring that those retroactive amendments and sentiment gets balanced through the Budget
At the end of the day, Budget is the only mechanism by which the FM can make pronouncements and changes in the legislation. This will be an important cue that everybody will wait to see that he completes the job that he has begun.
Secondly, we face a serious challenge between fiscal and current account deficit. The issue is not whether he announces 5.4 percent or 5.3 percent, the issue is what the maths behind 5.3 percent is and lots of focus will go on the maths being real this time. And should the maths be real, the sentiment will naturally be positive but if the maths is not real as we have seen in the past, then India Inc will be seriously discounted and sold and that is my concern.
Q: Will the math add up as you were suggesting because the FM will fall short by Rs 20,000-25,000 crore on spectrum auction alone, he will need to kick some of the subsidies back into the next year. Do you think he can have a credible plan to reach 4.8 percent next year?
A: I believe that what is more important is the number at which he finishes this year. I don't mean that next year is not important but he needs to close that. The reason why next year is less important because it is known that next year Budget is unlikely to be presented in February 2014. At this stage our assumption is that the Budget will be like 1991, in July 2014.
The current FM will be relatively unsure whether he will present it or somebody else will present it. So, the next year's number may pretty well be a number out of the hat without necessarily having to justify the maths, but this year's number in many ways will have to match up appropriately.
Q: So, you think he is thinking in those lines that next year is not my baby. This is what I can do next year my promise does not matter anyway?
A: Chidambaram is a wise politician so he will focus a lot more on where he will be held accountable versus where he may be held accountable. I don’t mean that he will just throw 4.8 percent as a number, I am sure he will try and work the maths out but he will be more interested in how it works this year versus next year.
The question is, can he get the maths right this year? Let us not forget that there is the month of March and as Ranina pointed out that if he is able to provide significant concessions that takes the market to a different level, his divestment program can still deliver some numbers for him.
The short fall on spectrum will be a big surprise to everybody, I say everybody certainly to the political circle not necessarily to many of us who had thought that anyway the spectrum was overpriced at this stage and that is the big issue that we are all waiting to see on the Budget day. I mean how does he get the maths right?
Getting the maths right is also important that the fear of rating downgrade still looms large. Although the rating agencies will give appropriate weightage to the fact that the country is entering a political period so there is only limited amount of flexibility that any government can have, a larger fiscal deficit or a fiscal deficit that cannot be appropriately supported by maths could just instigate them to start re-looking at the re-rating.
If that then that will have a serious impact on the currency and the FIIs do certainly not want to see that because that is a huge negative from the sentiment of investing in India strategic or FIIs at this point.
Q: These are not game changers but do you think he will attempt these small gimmicks like Securities Transaction Tax (STT), etc to keep the market happy on that day?
A: I don't think so. The FM not only has FIIs to please but also any important community to please which is the electorate, voters and his cabinet colleagues. I think he will not give any concession which will be seen as pro-rich in any form or shape.
I recognize that a reduction in capital gains tax is not necessarily a pro-rich step but from larger electorate perspective, it will be seen as giving concession out. I think he will not tinker with these smaller issues. I don't disregard the fact that the sentimental value of some of these from a limited one-five days in the market could be high. However, I don't think he will trade that limited amount of value for what could be a significantly larger impact on a more important issue.
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