With Finance Minister Arun Jaitley doing a balancing act in the Budget by observing fiscal prudence, the ball is now the RBI’s court to cut rates. Speaking to Bloomberg TV India, JP Morgan India CEO Kalpana Morparia said a systematic disinvestment plan and monetisation of PSU assets can help in the fiscal consolidation process.
We started 2016 on a very disappointing note and suddenly the tide seems to have turned. Is the worst over?
If you look at the global markets, 2016 will probably go down as one of the worst starts we have ever had to a calendar year.
There is despondency all around. In India, the big worry before the Budget was that given the current global environment and relatively slow growth that we have been seeing — even though 7 per cent plus growth does not seem slow by any stretch of imagination — there would be a tendency on the part of the government to really once again bust the fiscal deficit numbers.
And that clearly had created a fair amount of nervousness as you witnessed across the three markets — FX, fixed income as well as equities. At the same time, there was a lot of recognition that you needed to speed up spending and investment at the government end, particularly in rural India, and large scale investment was not taking place in infrastructure from the private sector for a variety of reasons.
I thought the Budget did a very good balancing act in terms of staying with the fiscal prudence. I remember all of us watching the Budget speech when he came to that particular paragraph and talked about how there were two views. We were all literally holding our breath and saying — stay with the fiscal. And I think that actually put a lot of confidence at the macro level in what the government wants to do.
Adherence to FRBM (Fiscal Responsibility and Budget Management) in the Budget puts the ball in the RBI’s court now, and the general expectation is that there will be a steeper rate cut. What’s your take on that?
We do believe there will a rate cut. I do not think we should keep on pounding on this again.
And again, because I am sure it will come through, whether it comes through in 15 days or another one month…my guess just now would be that we might see one actually fairly soon, with 25 bps.
And then they will probably wait for the monsoon to see whether they should come up with another rate cut or not. I think this Budget put a lot of thrust on investing in areas where India desperately needs investment but at the same time talked about asset sales to fund infrastructure. The government has these road projects that have been on an annuity…construction phase is over…how you can bundle that and basically free up the money and turn to build some more roads.
This is what the country really needs desperately. If you really get these stressed assets off the banks’ books, it will free them up for lending again. And once you are able to aggregate these stressed assets it is always that much easier to find a solution, in several dimensions.
There has been a lot of scepticism about the fiscal math and whether it will be met. Do you think there is enough on the revenue side or the asset sale side to really balance the book?
I think there is more than enough on the asset sale side. There is a great land bank that the government can decide what and how they want to do. If ask is it there, the answer is yes. Will it be executed? I think we really will have to wait and see that.
In fact, one approach to the entire disinvestment that our economists have been making is to view it exactly like how an individual investor does a systematic investment plan.
You do a systematic disinvestment plan. You do not come up with something big suddenly in one month. You do it in a very systematic fashion. So I genuinely believe the assets are there to be monetised and certainly there is scope in some of the PSUs. They are definitely scoping a lot of infrastructure projects that the government has invested in.
With that, coupled with some of the taxing of certain segments that has been done, I believe they have a fair shot at getting there (fiscal deficit target). I do not think we should be sceptical about it.
There have been some positive developments in the banking sector. The Bank Board Bureau has been set up. The RBI is stepping in by redefining the capital norms and now you have this possibility of consolidation of PSU banks. Do you think the worst is over?
They are great first steps in terms of aligning our capital requirement with Basel-III. The fact that banks are making provisions is again a great step. The next step will have to be how you aggregate assets across these banks and then figure out the right restructuring strategy.
We believe there is a fair amount of foreign private equity market, which will be available for funding these. We have to bear in mind that these are physical assets on the ground. You need to right-size the debt and you need change in management in some cases. So I think they are great first steps and we will now have to see the follow-through.
Until recently, we were witnessing a sell-off in Indian shares and now things seem to be settling down. But is India really looking exciting going by the delays in key reforms like the GST Bill?
We should segregate what it is that foreigners are thinking — about investing in India as a business as a traditional definition of FDI; what foreign portfolio managers are thinking about; what fixed income investors are thinking about. We tend to bundle all of that.
As Indians, we are probably are critics of ourselves. So we say this is not done, that is not done and more. In terms of just the attention that India gets today amongst the Fortune-500 boardrooms, I would say it is significantly superior attention. People are definitely viewing increasing their businesses if they are here already. And if they are not, they are thinking of coming in. So there is definitely a shift and it is a very positive shift, which did not evaporate in the last four-five months. On the occasion of Women’s Day, what’s your view on the quota for women in India Inc and government institutions?
I was the most sceptical about doing this because I have grown up in an environment where women succeeded because it was such a gender-neutral organisation.
But I believe that today if there are institutions where you just don’t open the door to a woman, you cannot say you should have as many women on the board as men. Companies are trying to do a lot to create a facilitative environment so that women flourish.
If you look at any company’s statistics, at the entry level they could be broadly 50:50 —it could be 40:60 or 35:65 but not as stark as one in a board of 10 or 12. As women grow in their careers, they have to take time for child bearing and child rearing. That’s where they tend to slip from the workforce. And we as corporations and society at large don’t do enough hand-holding in that critical phase.