Jaspal Bindra, CEO, Standard Chartered Bank Asia, was in the UK for a monthly board meeting. Before flying back to Hong Kong, he gave a five minute interview to Asia House Web Editor Naomi Canton.
What are your impressions of India’s July 2014 Union Budget?
It was not a budget with a ‘wow factor’ but we need to be rational in appreciating that this Government had four weeks to prepare for it whereas the previous Governments took months to prepare for it, so we cannot expect too much. Given the clear mandate they received upon being elected, we could have expected them to outline a roadmap for some of the slightly more controversial matters, like labour laws and subsidy cuts (such as in cooking gas), since this is their honeymoon period. If they leave things like this for more than a year, it will become much more of a political challenge. However, just because they did not mention it in the budget, it does not mean they will not tackle it.
This budget was essentially about balancing the fiscal balance and they clearly have the maths worked out. They announced a robust increase in tax revenues, but they did not eliminate the retrospective taxes from the past.
The most ambitious thing they announced was the disinvestment [the partial or complete privatisation] of public sector companies. The sale of stakes in these companies will boost government revenues.
However, since they have a high target in tax revenues to achieve, I think they could have been more creative. The main problem they face is widening the tax revenue base, as it is currently below three per cent. They are seeking big multiples in tax revenues so now it is all about execution.
Where I would take a lot of comfort from the budget is that they have been responsible in accepting it is their job to ensure fiscal prudence. The budget has been very good in allaying fears that the NDA is driven by nationalistic sentiments by opening up real estate, railways, insurance and defence to foreign direct investment (FDI.) They have gone beyond what any previous government has done by opening the door to foreign investment in this way and also created new capital market instruments and enabled domestic and international capital markets to be improved and reduced tax on capital market instruments.
In addition, they have created an eBiz platform which provides one point of contact for every investor – every Ministry has to sign up to it.
Plus they have reduced to five per cent the withholding tax on foreign investment in all corporate bonds.
It’s only been four weeks. I would give them 100 days and wait for the first 100 days report which they have promised. It will give a better sense of where they are heading,
Do you think they should open up more sectors in FDI?
It’s more about getting it right than opening up several sectors. This Government is not keen to open up FDI in multi-brand retail for example. It is a state matter now i.e. the states can decide if they want it but the Centre [under this new Government] does not endorse it. The opening up of FDI in defence and railways is far more significant than everything else. Both are completely opening their doors starting from zero creating opportunities for domestic private companies as well as international ones. It’s too early to say if international companies will want to enter those sectors – it depends on the fine print. They will have to show results.
How optimistic are you that things will turn around?
This government is still fresh from being voted. They were voted in on the mandate of making India a better place for Indians to live, work and prosper in. They don’t have five years to do it as there are several state elections in each year before the next general election, so they can’t bury anything under the carpet. On the ground, when I go to India, I am seeing intense activity in the corridors of power.
The most important thing for the banks is to get the infrastructure sector going. Finance Minister Arun Jaitley spoke about building 200 new airports to connect tier II and III cities (smaller cities and towns) and new roads and highways – all that kind of stuff is very promising. New opportunities will come in the 100 new smart cities he has announced. As the current backlog of suspended projects begin to take off, the banks’ portfolios of assets will improve and allow them once again to extend project credit.
What is the impact of the budget on banks?
Arun Jaitley spoke of the recapitalisation of banks. They will probably allow them to be disinvested further so there is room for further capital raising through that. But we expect a lot more on financial inclusion and new banking channels.
What is the biggest challenge that India faces right now to turn the economy round ?
In the medium term, job creation. India needs to create millions of jobs for the huge numbers of young people coming into the workforce.
This is one of the biggest challenges. We don’t want the demographic dividend that India has to become a curse. Clearly, education is the only way to get more people into jobs. We have to get education right and the real problem is that a lot of people talk about capacity but technology and using that in education would solve this. My biggest worry is the mindset – according to every Indian psyche every child has to be a graduate or a postgraduate and no one wants their child to be a carpenter or a mechanic – but that is where the gap is and that is where the jobs are. The manufacturing sector is going to be the biggest provider of jobs. The second big incentive for finding more jobs is that we are having a lot of strife in many states, and a lot of this is caused by underemployment and unemployment among rural youth.
Jaspal Singh Bindra signs the Asia House guest book
To read an interview with Richard Rekhy, KPMG India CEO, speaking about India’s July 2014 Union Budget, click here.
To read about a breakfast briefing and roundtable discussion on the budget that Mr Rekhy and Mr Bindra took part in click here.
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