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Business News/ Opinion / Rana Kapoor | If I were FM
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Rana Kapoor | If I were FM

Yes Bank MD and CEO Rana Kapoor talks about his expectations from the Union budget

Yes Bank managing director and chief executive officer Rana Kapoor. Photo: Abhijit Bhatlekar/MintPremium
Yes Bank managing director and chief executive officer Rana Kapoor. Photo: Abhijit Bhatlekar/Mint

What are your expectations from the budget? What are the two or three things the finance minister should do to revive investment and growth?

I expect the Union budget to be beyond a set of numbers depicting the balance sheet of the government. The new government, with a strong mandate, is likely to use this platform to signal its policy intent in a more nuanced manner. The thrust should be on reviving the economy with focus on job creation and skill development, managing supply-side inflationary pressures, along with strict adherence to fiscal consolidation with focus on quality of adjustment.

With investment revival now becoming an imperative, the finance minister needs to facilitate a conducive environment for doing business. In this context, clarity on retrospective taxation and structural tax reforms (like the direct taxes code and the goods and services tax) should be prioritized. Activity in the infrastructure sector can be stimulated by classifying fresh bank lending as PSL (priority sector lending) and deploying the over 2 trillion cash surplus with public sector units towards capex. In a similar vein, the government can also channelize existing development programmes, like the Mahatma Gandhi National Rural Employment Guarantee Scheme for rural asset creation. Last, but not the least, a strategy for developing and energizing niche sunrise sectors like affordable housing, tourism, and healthcare needs to be put in place to harness India’s demographic dividend.

What is your budget wish list for the banking sector?

The banking sector needs to develop pari passu with the changing economic and financial structure. With this broader objective, the Union budget can devise a four-pronged strategy to:

(i) Broaden and deepen the pool of financial savings

This requires implementation of out-of-box ideas like conversion of India Postinto Postal Bank of India for leveraging rural penetration for financial inclusion and creation of Gold Bank for effectively managing the inherent demand for gold in the country.

(ii) Improve efficiency and productivity

The finance ministry needs to provide a timeline for setting up a Bank Investment Committee that will hold equity shares in public sector banks. Moreover, the government also needs to encourage consolidation in the banking sector to drive economies of scale and scope through diversification in geography and products along with pooling of human capital.

In addition, the statutory pre-emption in the form of statutory liquidity ratio needs to be reduced further (to 15%) in consonance with the road map for fiscal consolidation (3% deficit target) and requirements of liquidity coverage ratio prescribed under the Basel III framework.

(iii) Ensure availability of capital

In order to create wider equity access, the policymakers should allow foreign direct investment/foreign institutional investment fungibility (within the stated cap of 74%) for investment in banks, relax the limit on private equity investment in banks from 5% to 10-15% (with adequate restrictions on voting rights), reduce volatility and, finally, increase Life Insurance Corporation of India’s investment limit in banks from 10% to 15-20%. These measures will also help in reducing the reliance on foreign institutional investors for equity capital and thereby curb market-related volatility in the short term.

In addition, there is an urgent need to lay a road map with a five-year vision plan for recapitalization of public sector banks, which would require over 3.5 trillion by 2017-18.

(iv) Facilitate credit availability for key sectors

With focus on infrastructure, takeout financing could be incentivized by allowing reasonable compensation to banks and norms regarding acquisition of large-sized stalled domestic infrastructure projects by experienced players can be relaxed (with suitable safeguards like a minimum lock-in) to support capex.

In addition, Specified Undertaking of Unit Trust of India stake sale by the government in blue-chip companies, offers a route to raise critical resources and aid fiscal consolidation.

When do you foresee the economy turning around? Do you see any green shoots on the horizon?

The economy has already turned a corner. In my opinion, the worst is behind us. Since last year, macroeconomic variables have shown gradual improvement. Leading indicators, with the turnaround in the auto sector being a harbinger, point towards a pickup in growth momentum, inflation expectations have started to moderate, and most importantly the rupee has stabilized close to its REER-CPI (real effective exchange rate based on Consumer Price Index)-based fair value of 60 against the dollar. As such, the green shoots have begun to germinate. What we need to do now is to nurture these green shoots in order to deliver a robust and sustained economic rebound. I am confident that the new government at the helm will be able to deliver on our expectations; to propel growth to 7%+ within the next two years.

Which are the areas you would first look at if you were the finance minister?

If I were the finance minister, my approach for reviving the economy would be three-pronged. First, I’ll ensure strict adherence towards fiscal consolidation to create space for the much warranted infrastructure spending. Second, I shall utilize the budget platform to focus on reviving the investment climate with emphasis on “ease of doing business" and job creation. Third, I shall announce short-term measures to contain price pressures in the food economy. Towards this, the new government has already adopted a proactive approach by announcing minimum export price for onion/potato along with making available additional stocks of rice for open market sales. The budget must take this forward by announcing direct cash transfers for all social schemes, increasing the 10,000 limit for tax exemption on interest earned on savings account along with a rejig of tax slabs to comfort the common man against price pressures.

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Published: 04 Jul 2014, 11:11 PM IST
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