As the country awaits first Union Budget of the Narendra Modi-led government, top banker Chanda Kochhar feels that it can’t ignore harsh realities like the tough fiscal situation as well as rising prices and would need “tight control” over both expenditure and populism.
Ms. Kochhar, who heads the country’s largest private sector lender ICICI Bank, said the Budget would need to provide clarity about the prospective nature of taxation, as also other rules and regulations, besides lining up necessary steps to clear projects that have been stuck to boost investor confidence.
Finance Minister Arun Jaitley, who recently said that India has to make a choice between mindless populism and fiscal prudence, will present the Budget 2014-15 on July 10.
This would be the first budget of the new central government headed by Prime Minister Narendra Modi, who has also said recently that some tough decisions and strong measures are needed to bring financial discipline.
When asked what ‘bitter medicines’ people can expect from the Budget, Ms. Kochhar told PTI in an interview in Mumbai, “I think there are some realities that neither the budget can ignore nor we can ignore. The fact is that the fiscal situation is quite tight and so we need to take a proper stock of the fiscal situation. Then, it is a fact that the oil prices are going up because of the Iraq issue and then we do not know how the food inflation would move given the current monsoon situation.”
She said these are clearly the realities that “we are facing and I am sure that when a responsible government makes the budget, no one can run away from these realities. So, there will have to be a very tight control on both expenditure and populism”.
She added, “At the same time, one should also focus on what are positive steps that can be taken to increase the revenue side, and therefore one has to manage both the sides. Therefore, we need to kickstart generating cash flows. We would also have to look at how can be improve the supply side of food. We also need to think what we can do to the entire agriculture chain to reduce the wastage, make distribution more efficient. That way also, we can reduce some pressure when it comes to food inflation.”
Ms. Kochhar further said that as far as the Budget is concerned, “the other things that can be done are to give clarity about the prospective nature of taxation, and rules and regulations. I think that can again boost lots of confidence”.
Asked about her views and the stance taken by foreign investors about the new government, Ms. Kochhar said, “If I talk from the global investors’ point of view, they are watching the developments very closely. They are looking at what is happening in India and that they are doing with a lot of interest.”
“Everybody’s belief is that this clear mandate that the government has got, that should give them the ability to take decisions, that should give them the ability to create an investment friendly environment and I think people are now going to actually watch for action,” Ms. Kochhar said.
On whether global players are ready to invest and think that India is out of the woods after years of ‘policy paralysis’ she said, “I think what they are saying is that they believe in the long term story for India and additionally what they are saying is that a clear mandate should be a big facilitating factor for starting the decision making process. And then they are also saying that they have seen Gujarat model work very well and therefore they expect the things will work well at central level also. Therefore, they are keenly watching the developments.”
Asked about expectations from the new government in the Budget as also in the longer term, Ms. Kochhar said: “The first priority for the government should be to clear projects that have been stuck. Because, a lot of investment have gone into the ground, assets have started to get created, but lots of these assets are not generating cash flow because of last-mile completions, be it last-mile approvals, or backward linkages of raw materials etc. So, I think it is of national importance that we make these investments work. So, for example if we look at power projects, then work should be done to make coal available so that they start generating power.”
Ms. Kochhar said it was not just the case that power should be generated because it adds to the GDP, but its availability would lubricate many other industries as well and help start the whole cycle. “So, getting that sorted out is the most important priority.”
She added: “We can achieve a lot of objectives with that. The investments start generating cash flow, production leads to GDP growth, the cash flow leads to de-clogging of financial tightness in corporate sector and that gives a confidence to the corporate sector to think about other investments. That also gives confidence to outside investors that action is happening and things are moving. And that also improves banks’ ability to lend to future projects. So, there will be lot of objectives can be achieved with just one thing.”
Ms. Kochhar also said that there are many other things that can be done, including implementation of the GST regime, which will again “lubricate the economy and start the positive benefits”.