Pitching for disinvestment in public sector behemoths like LIC, Air India and BSNL, top industry leader Deepak Parekh has said it can unlock huge funds worth “lakhs of crores of rupees” and shares should be given to retail investors without depending on the overseas entities.
However, one of the major requirements for such large- scale disinvestments is a government thinking on those lines, as lack of political will and union pressure have been halting such proposals for a long time including during the tenure of the previous UPA government, he said.
Giving examples from during the UPA regime, Parekh said he has been part of many important government panels, including those on BSNL and Indian Railways, but nothing moved on the suggestions made by those committees.
“…if you run down a company to that level in the public sector that no private sector entity will want to take it, then what will you do?” he wondered.
Parekh also hoped the first full Budget of the Narendra Modi government will focus on reforms without much populism and pitched for incentives for the companies to launch new projects and give a boost to the ‘Make in India’ campaign.
He said the government’s finances are in a much better position to go ahead with reforms, following steps like reduction in subsidy and checking of wastages and leakages, but it would have to remain within its means.
While echoing Finance Minister Arun Jaitley’s assertion that reforms can happen through 365 days a year, rather than being only on the Budget day, Parekh said that the BJP’s defeat in Delhi elections was unlikely to result into any kind of populist measures at the cost of reforms.
He also flagged a continuing fear among bureaucrats of being hauled up as a major reason for inordinate delays in the decision-making process, saying things can change for better if they are assured of protection.
Parekh, a leading industry voice who has been always vocal with his frank views on the issues faced by the companies and investors from India and abroad, said that the Prime Minister has been time and again assuring the bureaucrats that they should not worry and “act without fear or favour”.
“This is the right thing to do (assuring the bureaucrats), but seeing what has happened to some of their ex-colleagues, bureaucrats are still not hundred percent sure that if they take a call and it goes wrong, will they be investigated or will they be treated like they made money or it was vested interest and all that,” he said.
Parekh, Chairman of financial services giant HDFC, made these remarks in an extensive interview to PTI, wherein he had also talked about steps that are required to improve ease of doing business in the country and to convert prevailing optimism into investments on the ground.
Parekh said a lot of decisions have been taken by the Modi government, “but it is the process… Fast-tracking these processes will ensure improvement on the ease of doing business front”.
He rejected the perception that the Prime Minister was controlling everything and this was reason that was delaying the processes.
Parekh also said that the private sector investments were key to economic growth and there should not be too much dependence on government spending.
With so many new fund-raising options available including private equity, sovereign funds and overseas bonds, he said financing should not be a problem for the corporates.
For the ambitious ‘Make in India’ campaign to succeed, Parekh said, the government needs to ensure that commitments made to the infrastructure firms are duly honoured and a right atmosphere is created for local as well as foreign investors.
On stalled projects, he said that many of the projects that were stalled were infrastructure projects and most of them were predominantly in the power sector.
“I personally feel that we need to have more aggressive thrust towards improving ease of doing business… After a gap of few years, India is again being talked about at in the international board rooms. That is because we are a massive market,” Parekh said.
The eminent banker said further that the Prime Minister rightly says that it is ‘Demand, Demography and Democracy’ that makes India a right place to invest.
“These are the positives India has. The demand is here, so every multinational, every company they want to have their sales or business or operations here.
But processes have to be reduced and made easier,” he added.
When asked how much money can be generated from big divestments like Indian Railways, LIC and Air India, Parekh said: “It’ll be huge. It’ll be lakhs of crores of rupees.”
“LIC is the biggest financial company of the country and if after this insurance bill is passed and if all of us, private sector insurers, are going to be publicly listed. Most of us, ICICI, HDFC etc are going to list their insurance companies sooner or later, in the next 1-2 years,” Parekh said.
“All government banks are listed and private sector banks are listed and similarly, if private sector insurers are listed, then why not list LIC. Let the government sell 10 per cent and say we will give it only to the individuals of India. Everyone will buy,” he added.
“In fact, we must encourage Indian retail investor population to buy the equity. Today most of us go abroad to sell it because it is easily done.
But we need to have Indian retail population in the capital market. You can not have a capital market dominated only by the foreigners,” Parekh said.
“…options are there, priorities are there, recommendations are there, but if no one follows that, then what is the point of making committees and reports,” he said.
He further said: “Manmohan Singh, when he was Prime Minister, had formed a committee for BSNL and he called us and told us that BSNL is going Air India way. This was four years ago. He said that BSNL will go Air India way if we don’t do something about it.
“We gave a report. It was the Sam Pitroda Committee report and there were 5-6 members and I was one of them. We must have had 34 meetings. But when we gave the report, the then minister did nothing. Not one page must have been opened.”
Parekh said: “Similarly, when Dinesh Trivedi of TMC was the Railways Minister, he formed another committee for railways. We spent a great amount of time on that, but when I told our present Railways Minister Suresh Prabhu to have a look at that report, we found that no one in the Ministry had even told him about that report. He had not seen the report, which was one year old.”
On overseas investors, Parekh said the foreign companies are today more optimistic and hopeful about India than the Indian companies, because they find the change in government, they find a change and they expect the government to perform.
“And of course they want to come to India, because it is the place where the market is and it is the place where demand is. But the question is will we be able to satisfy their aspirations, will we be able to satisfy their time limits and working conditions that they have elsewhere?”
Asked about the steps that the government needs to take to change the scenario, he said, “Simplification is the name of the game. Giving an example, Parekh said one needs to understand why so much foreign money is coming into India through FII debt and FII equity routes.
“Since January 1 this year itself, USD 7.4 billion in debt and equity has come in. It is a huge amount for six weeks…”
Sebi and RBI have streamlined the processes with the support of the Finance Ministry in the past few years to make it easy for companies to buy stocks and sell stocks.
“We have to do similar things for every sector,” he said.
On fear among bureaucrats, Parekh said: “Today if I take a business call here at HDFC, and 1-2 years later it goes wrong, in the sense of 10-20 crore, we started a new company and it lost money, I will take the blame, but I won’t be investigated by my board. It will be a wrong call and a business decision that went wrong.
“But in the government, they are questioned and they are hauled up. This is what is preventing the bureaucracy from taking decisions. You have to support the bureaucracy.
“We have very capable people, but why are they not taking decisions? It is because they do not want to be hauled up later and so many of their colleagues are under Investigations. Some for genuine reasons, some for harassments, some for checking. We can change our system if some assurance is given that you will be protected.”
On fiscal deficit, Parekh said the country will “have to live within your means”.
He added: “Certain amount of fiscal deficit is acceptable if there is growth. With a good growth of 7-8 per cent you can tackle a certain amount of fiscal deficit.
“With diesel and petrol prices being market-linked and with the direct transfer of subsidy, the government will save a lot of money on fuel and other subsidies. A lot of wastages and leakages would be avoided because of direct transfer and the benefit would be there.”
Parekh said: “They have opened over ten crore accounts and all of them have got Rs 1 lakh policies and 75 per cent of them have Rupay cards.
That scheme has been a success. Many may not have used it, but now when subsidies come into those accounts, they will use those cards.
“I think on the fuel subsidy, they will save a lot of money this year. Apart from prices coming down, direct transfer will save money, diesel on market price will save a lot because diesel subsidy was very high once upon a time.
“Two-three years ago, the diesel subsidy was Rs 80,000 crore and it will be zero this new year. This is a huge benefit. Coal prices have come down, iron prices have come down, commodity prices have come down. All these are benefits.”
He further added: “So, I don’t think that just because BJP lost Delhi elections, they are re-thinking the Budget and they will give more freebies. I don’t think so. I think the Finance Minister is absolutely right (when he says reforms can happen on all 365 days in a year). The reforms should take place on a daily basis. Only in India we give so much credence and so much importance to the Budget.
“It is a book-keeping exercise of government accounts, along with introduction of some new taxes and removal of some. It is never a big thing anywhere in the world. I have heard everyone saying this budget is going to be make or break. What is going to be make or break?”
On his expectations from the Budget, the eminent banker and Chairman of financial services giant HDFC said: “The government needs revenue. We have deficits, so we can not reduce taxes. Our tax rates are as such reasonable within the overall standards from what we were paying.
“Two or three things that he may do include giving more money in the hands of consumers by increasing the limits, so that more people get out of the tax bracket and have more spending power. We need more people to start spending to kickstart the demand.”
“Secondly, there must be some encouragement to put capital investment on the ground, because people are reluctant to put new projects. So, you have to give some incentives for new companies, for existing companies to start new ‘Make in India’ projects, manufacturing projects,” Parekh said.
He added: “We had that investment allowance and accelerated depreciation to start a plant, and something to that effect that will save the tax to the company, something may come.”
When asked whether AAP’s huge victory in Delhi Assembly elections can result in the central government coming out with more populist measures in the Budget, Parekh replied in negative.
“I don’t think so. I know Delhi is our capital, but it is just one percent of India’s population. Since it is the capital and it is the place where the central government is, it gets so much attention.
“If this election was in Puducherry or in Goa, it would not have created so much discussion, so much havoc or so much press coverage. It is getting undue attention and over- excessive publicity. I don’t think this is the way of things to come. I don’t agree at all.”
He further said that people of Delhi wanted to have cheaper power, regularisation of jhuggis and free water and they appeared to have voted for the same.
“I don’t think this will be followed in Bihar and West Bengal. It is just one instance and I think the BJP has accepted the defeat. He (Arvind Kejriwal) has appealed to the people of Delhi that he can change their life and save some money for them by giving them regularity of power and water…
“But I don’t think you can say that in every state, Aam Aadmi Party is going to win. It is the beginning, it is a lesson, it is something that BJP should look at.
“The only way you can reduce power tariffs is have cross-subsidy. It has to work that way,” he added.