The Race To $5 Trillion

Prime Minister Narendra Modi has set a goal for the nation to become a $ 5 trillion economy by 2024. This goal can only be met if the nation’s entrepreneurs achieve landmark growth. Rtn. Anil Harish and PP Shailesh Haribhakti discussed these issues in a panel discussion on the Union Budget 2019-20 with stock market analyst S P Tulsian. The panel was moderated by Rtn. Shariq Contractor.

RTN. SHARIQ CONTRACTOR

INDIA’S passion for the Budget falls only a little behind its love for cricket. My dream is for the Finance Minister to say, while presenting the Budget, that there are no amendments to the Finance Bill. He or she may wish to simplify the tax law each year but perhaps the best path to simplification is not changing it every year.

The two things that are inevitable in this world are death and taxes, said Benjamin Franklin. But at least death does not get worse every time the Parliament sits in session. Fortunately, there were no tax on death this time, so we got away with it.

Budget has been presented at a time when the GDP has fallen to an all-time low; investment, savings as well as consumption are down; there is climate change distress too. Despite these factors, the government has a clear vision of what they want the country to achieve: a very ambitious $5 trillion economy.

Is this a realistic target or is it just aspirational? The GDP growth projected is 8 per cent coupled with maintenance of fiscal discipline. That is another challenge the Budget has to face: how do you maintain growth and fiscal discipline?

The Budget allocates Rs 100 lakh crore for infrastructure. However, some details are missing as a committee is to be set up to look into the challenges of how to fund that growth. Rs 70,000 crore has been allocated for bank re-capitalisation; is that sufficient?

The most controversial view is the plan to raise funds from overseas markets by issuing sovereign bonds. India’s borrowing in the international market has been low and perhaps this is the right time because there has been a lot of
liquidity in the international market. However, are we factoring the exchange or is the government very confident of maintaining the exchange value of the rupee? And, if that does not happen, how will it be affected, will volatility in the interest market go up?

The big news in direct taxes is the excess surcharge on high net worth individuals (HNI) which means, at the highest
level, the tax rate would be 43 per cent incoming. This raises a bit of concern with a high tax regime coming in. My concern is that surcharges come in temporarily but become permanent fixtures. Interestingly, there is an attempt to root out corruption by faceless, anonymous scrutiny.

A lot of items on which import duties have been enhanced raise concern about inflation, consumer suffering and a protectionist tendency. A lot of resources are likely to be mobilised through PSU shares. Will those materialise or not? This time, to match the fiscal math, the Government has suggested that 1 trillion will come from dividends declared by the Reserve Bank of India and state-owned banks. That is a huge sum of money and I am not sure if that is the direction we would want to go as it puts pressure on the banks to declare that kind of dividend.

SHAILESH HARIBHAKTI ON MACRO-ECONOMIC ASPECTS

I am sure we will achieve a $ 5 trillion economy by 2024. Let me talk about innovating to zero. What has this government already innovated to zero? It has achieved zero defecation districts across the length and breadth of the country. On October 2nd, India will be open-defecation free. That is an innovation to zero.

The other is that every Indian has not only an identity but also a bank account. That is innovating to zero.

Thirdly, housing for all is not an empty slogan. Listing down the macro things: Every house will have running tap water; removing open defecation has reduced incidences of disease to an unprecedented extent. What nal se jal or har ghar jal will do is will relieve or open up the resources of our women folk in rural India and that will have extraordinary effects.

Every job seeker will turn into a job giver; every child will have access to basic education; every Indian will have access to healthcare. The Ayushman Bharat scheme is already having a miraculous impact upon families at the bottom of the pyramid. The allocation for that has been increased. Pension for all – just imagine a shopkeeper or small trader having pension! It is something we did not think about for 70 years. Now that we have started thinking, our pension assets only in the National Pension Scheme have grown to two and a half lakh crore. It is an astonishing accumulation of money.

Mobility for all – we can buy our pass and top it up using any bank account. We can travel by bus or taxi anywhere in the country, just like in countries abroad. One digital payment app on every single smartphone will become a reality because everyone who has a turnover of Rs 50 crore plus has to deal electronically at a point of sale obligation. Every taxable income earner will get a pre-filed tax return. Every MSME will get a loan in an hour – this infrastructure has been created and it is incredible.

Every woman member of a self-help group will be entitled to equity access through the Mudra loan. This will be transformational. Our first 211 lakh crore came, largely, from people in this room, our part of the population. The next 2 lakh crore will come from the vast majority of India – that is the biggest message I got from this budget. Institutional innovations,10,000 farmerproducer organisations will be put up in one year, for the first time, making them think that they can influence the future. Social stock exchanges – this is a big initiative that the Rotary Club will have to take up. Our access to capacity-building money and power access to programmedriven money will be dependent upon whether we have the highest quality of governance and highest standards of accounting. Why not RBI with all control over credit? We have a swathe of credit which is still not regulated by the RBI. It is absurd that you leave 2 lakh crore of credit unattended. Why not empower the Reserve Bank of India which, alone, has a macro view of what is happening in India.

For Rotary, three big things stand out from this budget:

1. Social stock exchange

2. Let’s create a 1 crore programme on rainwater harvesting in Mumbai to cater to the water scarcity issue.

3. Enable all communities to take these benefits from the Budget and make them real for themselves.

RTN. ANIL HARISH
Every year, the Finance Minister’s speech consists of two parts: part A is a vision document with talk about a $ 5 trillion economy. There, we must say that Piyush Goel, who was our Finance Minister a couple of months ago, said that India should go to a $ 10 trillion economy. We have now come down to $5 trillion. Today, we are at $2.7 trillion. If we want to move to $5 trillion in the next five years, we will have to move to an 11 per cent growth rate.

I don’t think that is going to happen but it is a good vision to have. Part A of the Budget talks about many other things like a 100 lakh crores of infrastructure and new education policy and waterways. For a change, you are not talking about cleaning of Ganga but to use it for more cargo movement and electrification. This is a very good vision and we hope that it comes about. I think, as the Finance Minister lays out the programme for the financial year, every Minister should be called upon to say that this is my programme for the next year and this is how I am going to achieve it. Figures are one thing, actual implementation on the ground is very important.

Part B: the best thing about the Finance Minister’s speech was what was not said. That was we don’t have to worry about the time when we check out from this world because we don’t have to think about estate duty right now. I feel, that she did mean that they want to move out of tax terrorism. Today, the tax department not only destroys people’s opportunity to create more wealth but also their lives.

Coming to the taxes, there should come a time that there is no amendment. The Income tax Act is now 58 years old. Every year, we have about 50-100 amendments. This year we had 67 amendments. In all, we have had 3600 amendments. I am sure that is a world record our country holds. Of these 67 amendments, as many as 10 are retrospective. This is not a good thing since it shows that there was not a clear thinking earlier and they want to cover up mistakes.

They call it a rationalisation but no one admits that what was done earlier was irrational. Then there are some other amendments which have come into effect from July 5th itself which means those are also retrospective because the act is going to come into force after the President’s assent some weeks from now.

Some of the amendments are beneficial, some are not. A client called me and asked me, what is there in the budget that will make me want to invest more? I said, there is nothing significant. If you want to take a loan for a flat which is worth only upto Rs 45 lakh, you will get Rs 1.5 lakh more as a deduction but that is not significant. A person at that level will not have that much income and apart from that, this is facility is only available for a year, only for a loan sanctioned up to March 31st.

I feel we lose an opportunity every year with the Budget. Brutus, in Shakespeare, says, “There is a tide in the affairs of men, which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries.” We are not in that situation, but this is a loss of an opportunity.

SP TULSIAN ON CAPITAL MARKETS
Coming to the 35 percent increase in the minimum shareholding norm, if you see the media, I don’t know from where they got this 4 lakh crore figure. Even if it is to be implemented, it will not take more than 2.5 lakh crore. Let’s have precedents for that, I’ll give you the example of Life Insurance companies. There are three LI companies listed, SBI Life, HDFC Life and ICICI Prudential. All three went for state reduction because, if you recall, the provisions that come with an IP of 10 per cent dilution gradually increased to 25 per cent. So, all these companies went for state dilution, shares fell by 5 per cent. But, in the last three months, all shares rose by 20-25 per cent. So, I think it is an excellent move. For example, Warren Buffett, he wants to invest in India but he doesn’t get a sizeable chunk which he is looking for – about $10 billion in one company. The highest dilution seen in any company will not be more than $10 million, so no need to worry about that.

Second point is surcharge increase. It is a serious issue and I don’t think it was intended by the government that FPIs are affected, because they are either registered as corporates or as trusts. As Shailesh has referred to AIF3, I doubt it will get any kind of relief but it is better if the finance ministry comes with a clarification that it covers all the trusts in the capital markets which includes AIF3. Even if it comes for FPIs it will be a very positive move by the finance ministry and I am hopeful that sooner or later it will come. On the third point of being super rich, I can understand the pain here as about 9,000 people have an income of more than 5 crore but, as a responsible citizen, when it is said that the budget is for the Gareeb Gramin Kisan, so the rural upliftment or distress people are seen as being covered in the Budget. But I like the stiff target set by the Finance Minister. There was no compulsion for her to set such a stiff target, everyone would have accepted a 3.5 per cent fiscal deficit including overseas investors.

In spite of that, she has kept the fiscal deficit at 3.3 per cent. And the leader of the government is known for achieving targets: Swacch Bharat Abhiyan which all doubted, similar is nal mein jal. A separate ministry under Gajendra Shekhawat has been formed and, I think, it will be a game-changer for India.

When you see drought, lot of money is going into subsidy, FY 13 and FY 14, 150 lakh crore on fuel subsidy and now that subsidy has been reduced to 50-55 crore. Similarly, on the water front, every year the drought takes 50,000 to 1 lakh crore. So, this is going to be a gamechanger. The second is homes for all. They have a target set for 2022 and 1.95 lakh houses are going to get constructed. We again may have a doubt that since the average for the last 25 years was 25 lakh houses. How will they achieve 1 lakh 95,000 houses in the next four years? They have also said that they have reduced the days of constructing homes from 314 to 114 days. That, again, is very positive. 100 lakh crore investment in infrastructure, 50 lakh crore in railways, the problem of liquidity has been addressed.

Reaching a $5 trillion economy, if you take the fiscal deficit at 3.3 per cent, 7 lakh 4 thousand crore, if you take that as a base, your FY 20 will be estimated to have an economy of $3 trillion and if you achieve 14 per cent growth in the next four years, you will see your economy reach 5 trillion dollars plus. But currency devaluation will be seen as a culprit to keep our economy on a back track. This time I won’t be surprised to see the dollar to rupee at 65 at the end of five years because of the huge inflows and government borrowings from the market, the investments. So, the budget is like a roadmap to the next five years. May be FY 20 will have some hiccups but I am very hopeful that the next year’s Budget will continue the promises made in this one.

SHARIQ TO SHAILESH
On the sovereign bond, there is liquidity and the RBI has been very conservative, what do you think and what are the risks?
All the big boys in this room will not have access to bank funding, all of them will have to go and raise money from the market. The banks are going to divert all their resources including NBFC, will lend to only MSMEs and below therefore we need to be able to raise money from the markets and the only way to create room for that raising is that the GOI doesn’t crowd out our capacity to borrow. You will be paid for borrowing; you just have to hedge. This is the only way to go forward.

SHARIQ TO ANIL
A lot of practitioners are worried because at times there is a faceless entity making all kinds of mistakes and there is no redressal mechanism. Is it fair to an assessee?
Sometimes it is very useful because it avoids corruption and you get some time to reply and they have to be taken into consideration. However, you do not get an opportunity of hearing and there are some things which can be explained much better in person than a long note which you don’t even know if the office is going to read. But let’s try it and let’s hope that it works out.

SHARIQ TO SP TULSIAN
A lot of emphasis has been on foreign investment coming to India, do you believe with all these measures here will be foreign funds coming in not only in equity but also in bond market?
In fact, I am banking more on the FDI rather than on FII. Giving an example of mobile phone makers, about five years back, India had 6 per cent domestic content with four mobile makers. Now, we have 232 mobile makers with 94 per cent indigenous content. Believe me, that kind of impact is due to the Budget.

Take the case of US-China tariff war, about 200 companies are sitting to come back to India, we have to only tackle early clearances and land issues. If we can solve that, a huge amount of cash is lying ready to invest in the country. China has lost on labour charges. Inflation differential is always captured by the week currency, and the second is huge FII inflows. If you have these two things, you may definitely expect to have a stable rupee. You will have to see the overall economy when it is more import based.