Q & A Deepak Parekh, 68, Chairman, HDFC
EDITED EXCERPTS FROM AN INTERVIEW
What, according to you, are the three key moves that India has to make in 2013 for its economy to look up?
Three key things I would suggest the government to focus on in 2013 are kickstarting investments, reducing the fiscal and current account deficit and putting big projects on the fast track.
We need to reignite the investment cycle. India is desperate for fresh capital; we need to start new projects and raise our capital spending. There is a fear of not getting land, approvals and power for any big investment. This climate must change; investors would come out and invest only in a stable environment.
Second, India needs to reduce its fiscal and current account deficits. The budgetary fiscal deficit target was set at 5.3 percent of the GDP, but we are heading to close somewhere around 5.9 percent, with rating agencies already threatening us with junk status. So the government must ensure that sufficient revenues are generated. There has been good news, though, with a 16 percent jump in revenues from direct taxes in the April-November period, year on year, and a 17 percent rise in indirect taxes. Hopefully, this will bring extra resources to the government, besides disinvestment, which may bring in another Rs 30,000 crore — an amount the government has also asked PSUs like RCF, Oil India and NTPC to raise in 2013.
‘The budget will be populist, though in a different way. Given the mounting fiscal deficit, we can’t afford to give away more
Third, and a critical step, would be to fast-track existing projects that have been stuck due to shortage of raw materials or lack of environmental and other clearances. The government created the National Investment Board and the Cabinet Committee on Investment for this purpose, but their powers have been diluted.
There was some movement on reforms towards the end of 2012, but will the government be able to build on those, given the countdown to 2014 has already begun?
It has to. If we achieve 5.5 percent GDP growth this year, only then will we see more than 6 percent in the next. Don’t forget, Financial Year 2013 will see the lowest GDP India has reported in a decade. But where Europe and the US are seeing just 1 percent growth in the midst of recession, India comes across as a survivor. I expect 2013 to be an improvement over 2012. Hiring by back office firms is steady, consumption isn’t off the radar, and consumer credit penetration is growing.
Do you think P Chidambaram has been the game-changer for reforms?
I think a third stint for him as finance minister has brought back investor confidence. Chidambaram knows the issues and the solutions. But in a democracy, especially for a coalition government, there is need to build a consensus. Carrying everyone around isn’t easy. It’s a good thing Chidambaram knows how to manage the economy.
Do you expect the budget to be populist or tough?
Given the mounting fiscal deficit, we can’t afford to give away more. I think it will be populist budget, though in a different way, with the government trying to increase revenue generation by taxing the rich more. Service tax too may go up by 1 percent or so.
There is a perception that India continues to struggle with inequality. Are we hurting the social fabric of an emerging economy by not improving social infrastructure?
Direct cash transfer using Aadhar is a way of tackling weaknesses in our social infrastructure. The poor will benefit as cash tranfers do away with middlemen. Indeed, the challenge is not what percentage of GDP we spend on health and education, but how we do it.
In the context of the new land acquisition policy, do you think industry can do more by way of rehabilitating those who give up land?
India Inc can do more, but the process of buying land for industry has to be cleaned up
Is a young and new leadership at the Centre the answer to India’s woes?
India needs young leaders. I was happy to see young MPs getting senior positions in the recent reshuffle. They have time on their side, vision and experience of India and elsewhere.
Is Narendra Modi a potential PM candidate?
It would be difficult for the BJP not to project Modi as a prime ministerial candidate. India’s top entrepreneurs seek a presence in Gujarat since Modi has a business-like approach and there’s little corruption in the state. Why shouldn’t he be given a chance to be prime minister?