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Last Updated : Dec 30, 2016 05:30 PM IST | Source: CNBC-TV18

Upcoming Budget likely to focus on agri, housing sectors: HDFC

The demonetisation pain is likely to lessen by February-end or early march next year bringing normalcy back into the system, Keki Mistry, VC & CEO of HDFC.

The demonetisation pain is likely to lessen by February-end or early march next year bringing normalcy back into the system, Keki Mistry, VC & CEO of HDFC.

Speaking to CNBC-TV18, Mistry said that some redistribution of wealth has happened with money going into the hands of poor people, which will boost consumption.

In the upcoming Budget, agriculture and housing are likely to be the focus sectors, according to Mistry. The government also needs to look at reducing tax rates, which will also help in cutting black money circulation.

Below is the verbatim transcript of Keki Mistry's interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: This is the day when the 50-day demonetisation ends. What is your sense, is this a one quarter pain, two quarter pain?

A: All these last so many years, we have been talking about black money and the damage that black money is doing to the system, fuelling inflation, leaving the burden of taxation to a very limited number of people, therefore any move to take out black money from the system will cause some degree of pain but to my mind once the currency situation -- there is enough currencies available in the system -- within a month of that I would think that things will trickle back to normalcy.

So my sense is by end of January, you get enough currency notes back into the system. I would say by end February or early March things should be pretty much close to normal. The benefit of the demonetisation will come by virtue of a couple of things. One is there has been some redistribution of wealth that has taken place because people who had black money have converted part of their black money into white through informal sources so that has resulted in poorer people making money, getting money in hand. Now that fellow who had black money was not going to spend that money, the poor people will spend the money so consumption will pick up. Give it a little time, give it another quarter more and you will see consumption pick up.

Sonia: The focus has now clearly shifted to what the government will do in the Budget in order to kick-start the economy once again. What is your own expectation from the Budget this time?

A: My sense is that there will be three-four sectors that the Budget will focus on, agriculture will be one of them. Housing will certainly -- to my mind -- be one of them because housing stocks worldwide have been taken as a barometer to gauge the state of the economy. Even in India, historically we have seen that whenever there has been a slowdown in the economy -- take 2008-2009 for example -- housing did act as a boost to the economy, so some benefits to the housing sector.

Housing and the construction sector is something that I would expect but I would say that one of the more important things is to lower the tax rates particularly the maximum marginal tax rates. The reason why black money gets generated in the system is because tax rates are high. So if you reduce the tax rates, automatically the incidents of black money comes down in the system. So I hope we would see something on those lines.

Latha: The worries of the market and of business minds are with the real estate sector, some part of it. Not the parts perhaps you all are exposed to but a large part of it is a cash-driven system and the fear is that the sector allied to it like building materials, cement, tiles, construction could take a longish hit maybe ten months, what is your sense?

A: Contrary to what you said and what most people seem to believe, we don’t believe there has been that much of cash indeed in the real estate market. There are certain geographies, certain cities where we believe that there is a larger element of cash but if you look at most of the projects, you would find that there is no cash at all in this Budget. You would have seen this over the last few years that as a consumer if you go to buy a property and you don’t have the ability to pay cash, there is no cash that is demanded from you.

Latha: There are definitely entire white payments but I believe that for instance in Noida we hear, you don’t get a house for anything less than 60:40. So my point is -- is there a 10 month effect or three quarter effect?

A: I would say in those cities or in those geographies where there was cash -- those geographies are not that many, I would say maybe parts of near Chandigarh or near Jaipur or somewhere near the NCR region or maybe Surat -- those were the places where there was some degree of cash but in most of the other geographies cash was not there. So if you look at from the business perspective, those geographies by themselves do not constitute a very large part of the total number of properties in the system. Pain could be there for a couple of quarters.

Sonia: I just want to come back to the point you were making about your expectations of lower taxes in the Budget, that was the expectation up until a while back but now since demonetisation has not brought a windfall gain, it seems like it will be hard for the government to fund any kind of big tax cut especially in this Budget, are you still hopeful?

A: We don’t know how much money has come back. So it is all conjecture at the moment. So let us wait for a couple of days but let us assume that a large part of the money does come back. Whatever little money does not come back, it is -- in my view -- a benefit of bonanza for the government. That is number one.

Number two is people who have managed to convert their black money in to white money and have now entered the formal system, today we have automation, we have systems where we can track these individuals and if you can then go after these people, find out how they manage to get so much cash, how they have deposited the cash and then tax them on the past income and more importantly even if you are not able to do that, going forward that money has now come into the formal system. So since it has come into the formal system, it will now come within the purview of taxation.
First Published on Dec 30, 2016 10:59 am