Uday Kotak at Idea Exchange: ‘Software isn’t adding jobs it did… We have to reinvent ourselves on where we can create new jobs’

P Vaidyanathan Iyer: During NDA’s first two terms, when they had absolute majority, they tried bold initiatives. Do you think that this budget is maintaining the status quo and not ruffling any feathers?

I don’t think they have withdrawn any of their prior statements. Therefore, whether it is disinvestment or privatisation, the government has not made any statement in the budget that pulls back from the earlier commitments or statements they have made. One would assume that they will continue down that path. Secondly, we have to keep in mind that this is an NDA budget and, therefore, it has to reflect the political economy of our times. Thirdly, despite that, they have not strayed away and gone into any populism, including any direct credits to people. How do we make the employment scheme work? That’s where I think all our minds should be. The budget has defined an intent to move in that direction.

P Vaidyanathan Iyer: The budget has been silent on disinvestment, on privatisation of some banks (which it talked about two or three years back), and on fertiliser subsidy reforms. Could you specifically address the issue of demand?

There are two parts to it. One is when you’re continuing down the path of fiscal consolidation, you are taking a disciplined call that there will be an X amount of money which will be available. Point two is that once that X amount of money is available, there are two choices. You do revenue expenditure or capital expenditure. Revenue expenditure will directly boost demand.

Capital expenditure will indirectly boost demand by creating more fundamentals. If you talk to any economist, they’d always prefer capital expenditure as a priority because it is more long-term. And that’s what the budget has continued to do. It has kept its capex at the same level as last time. In this context, we should ask ourselves why are we not making capital expenditures and investments in the private sector. The government is holding the level of capex, mainly public expenditure. It’s time for the private sector, as its capacity utilisation goes up, to take on the load of the expenditure side, which in turn will enable the fiscal side to open up space for more consumption push.

On regulatory Environment: India’s macroeconomic stability is a shining example of how the regulatory system across the board — banking, capital markets, and the insurance system — have held their ground

Udit Misra: It seems like the government has finally given up on the FRBM (Fiscal Responsibility and Budget Management ) framework. While it is true that our fiscal deficit is coming down, it was never achieved in the 10 years of Modi government. It seems like we’re not even going to target a fiscal deficit at 3 per cent of the GDP. Is moving towards a framework where we target debt-to-GDP ratio a good move?

There was and therefore we have to come to the first goalpost, which is 4.5 per cent, for which it seems we are in good shape in 2025-26. We will have to look at the state of the economy, the level of economic growth, and the political economy at that stage, to then take a view. At the same time, I think we are now at 58 per cent of GDP on the borrowing side. And this year’s budget is projecting another 1.2 or 1.5 per cent lower. So we are moving steadily towards a lower borrowing as a percentage of the GDP. One is to ensure that we carry on. Second is, do we put a target? The target depends on variables, as long as we carry on with the journey while keeping in mind that demand continues to grow because India has historically been a consumption economy. If you tighten the fist too fast, you also have the demand side issue. It’s an important balancing act.

Udit Misra: While the government’s capex has gone up substantially, if we take it along with the central PSUs, that number has been stagnant. One argument is that while capex is high, when taken together between the central PSUs and the central government, it has been largely flat. That is given as a reason as to why it has not yielded the kind of result that the government wanted. What’s your take?

If you look at this year’s disinvestment and other proceeds, the target continues to be a very modest Rs 50,000 crore. If I read the message of the budget, it is saying that we are not pushing central PSUs to give us disproportionate dividends. If you have capital expenditure plans, please reinvest. We are not in a hurry to divest but effectively telling central PSUs that we are not asking you to give us everything as dividends to meet our fiscal requirements. If you have capital expenditure needs, you are free to go ahead and that’s an important signal. But we cannot shy away from the fact that private capex needs to now come to the fore. And capacity utilisation in many sectors is moving steadily up. The demand side is clearly unequal. At the higher income end, the demand is more robust. At the lower income end, it has challenges, which is why the push towards employment is extremely important.

Look at how software is no longer adding as many jobs as it did. We really have to reinvent ourselves on where we are going to create the new jobs and how are we going to reposition ourselves on high employment-oriented jobs. There’s a huge opportunity in the post-COVID world for India to become the front office of the world, not just the back office.

On food in CPI basket: For the common man, if food costs more, it takes away the rest of the discretionary basket. Food should continue to be in the basket, but the weights should reflect today’s times

Shyamal Majumdar: A suggestion put forth by the Economic Survey was that India’s inflation-targeting framework should exclude food. With RBI continuing to maintain a stance that 4 per cent is Arjuna’s eye, what do you think of the suggestion?

In the current CPI (Consumer Price Index) basket, is the representation and the weightage of food appropriate? The weight of food is probably larger than what would be justified in terms of today’s consumption patterns. Therefore, relooking at the basket would be a step that we should consider. For the common man, you cannot avoid the fact that if food costs more, it takes away the rest of the discretionary basket and we cannot get away from it in a country like India. Food should continue to be in the basket, but the weights should reflect today’s times.

Shyamal Majumdar: In the past you’ve said that there should not be too many regulatory guardrails because they might affect economic growth. In view of the series of actions that have taken place on banks and NBFCs (Non-Banking Financial Companies), do you believe that?

We have to give credit to the regulators. They have navigated very well, particularly in the COVID and post-COVID period. India’s macroeconomic stability today is a shining example of how the regulatory system across the board — banking, capital markets, and the insurance system — have held their ground. We need to think about the windshield in front of us over the next five to 10 years. And it’s always a very delicate balance between the levels of enterprise versus the levels of risk. That is the ongoing equilibrium on which practitioners, policymakers and regulators will have to constantly evolve. A zero-accident policy has significant risks to growth. We need to minimise accidents. But we must also have a quick mechanism that should accidents happen, our responsiveness to handle those accidents has to be at alacrity.\

On employement: We really have to reinvent ourselves on where we are going to create the new jobs… What are we going to do to reimagine our future? There’s a huge opportunity for India to become the front office of the world, not just the back office

Anil Sasi: Those from the industry have claimed that the government is on the right track but stopped short of investing. Why do you think that the voluntary exercise of employment and internship will take off?

We have to look at the fine print. The Finance Minister made a valid point. It should not be an arbitrage for jobs. Otherwise the corporate sector would’ve had it in any case. It has to be a net addition. That is where the nuance of the policy is going to be important. That is where the corporate sector will have to figure out that if we took those additional people, how would that create value for future growth? As long as there is no arbitrage played by the corporate sector and it is additional jobs and the cost of that administration and other costs of that job is coming as a CSR activity, you are really investing for the future.

Anil Sasi: What is stopping the private sector from investing, given that banks are flush with funds?

For the last 30-50 years, we’ve been attuned to a traditional model as the basis of financing India. If there is any country in the world after the US that can get the balance between the saver-borrower model and develop the markets model, it is India. And if India handles it with maturity, it can have the capacity to attract more capital sustainably, while serving the broader needs of the real economy with both the models working rather than the historical situation, which was the saver-borrower model and disproportionately dominant.

Shobhana Subramanian: Liquidity seems to be determining interest rates rather than policy rates. Given that deposit growth has been slow, it seems to indicate that the level of loan rates will remain high. Will interest rates remain high?

This is where a holistic view of the financial sector is important and some of the steps in the budget are moving in that direction. The hurdle to put money as a saver into a deposit at the highest marginal tax rate, is naturally moving to higher risk, higher return, lower taxation bucket, which is into the investor model. So the saver is becoming the investor. That trend will continue. This slightly higher capital gains tax is still a step in the right direction. The gap between the interest rate tax versus capital gains on the short term, which is 20 percent, is still large enough for the saver to continue being an investor. It’s a good step in the longer term. Depositors with smaller amounts is what the banks will have to move towards a lot more. And the second area where the banks have to be clear is that money is moving into the markets, the transaction flows. Granular retail and transaction flows are the ways the banks will have to counter it. Banks have to reinvent themselves to the new paradigm.

On demand for reservation in the private sector: people need to be enabled with opportunity But if we move away from meritocracy, we run the risk of sustainability. The cost of creating opportunity needs to be taken by the state. private sector can give merit, opportunity and be a partner

Harish Damodaran: The twin balance sheet problem is history, right? It looks like we are in for a structurally higher interest rate. So are our households a weak point? Does it make sense to do cash transfers to stimulate consumption?

The budget has taken a view that rather than cash transfers, let’s create jobs and support MSMEs. The risk with direct transfers is that at some point it becomes competitive populism and difficult to control, not only at the central level, but even at the state level. Then you start losing control over a lot of macroeconomic parameters.

Sukalp Sharma: Will the increase in securities transaction tax for the derivative segment, bring a lot more sanity into that segment, considering that a lot of retail investors were entering and booking significant losses?

There are two approaches to take. One is to put the brakes. Second is to put sands in the wheel. I’m of the view that it should be the second. Therefore, increase securities transaction tax, lean against the wind, some sand in the wheels, and make sure that you let the marketplace find itself while you’re putting some corrective action without putting a hard break.

George Mathew: Money flow to the markets has been rising sharply, especially through mutual funds. People are breaking FDs to invest. The government has already talked about the high market cap-to-GDP ratio. Are these valuations justifiable? Should there be some kind of moderation?

The way to respond to the markets is supply. Stocks which are small and mid-cap or low liquidity with high government or promoter ownership bring supply to the market. If there is more money coming which creates a demand for the stocks, it’s a great time to encourage supply and flow of stocks particularly in low liquidity stocks whether in the private sector or in the government sector. A proper framework of regulation and thereafter letting market forces find the levels is the right thing.

Udit Misra: Was the corporate tax cut poorly timed?

You’re more than five years into the new corporate tax regime. I think we’re ensuring that enough surpluses are happening in the corporate sector to be able to invest. What I would much rather focus on is how do we get investments going in this economy? If you look at the global rates for corporates, including the US, the tax rates for corporates have been lower than individuals in most parts of the world, because finally it is going into productive investment. Therefore, we have a benchmark. We need to be careful at this stage. We should actually encourage animal spirits to go out and invest and bring the much-needed private capex coming into play.

P Vaidyanathan Iyer: Haryana and now Karnataka have proposed job quotas for locals. Given India’s political economy, do you foresee a demand for reservation in the private sector? Is corporate India doing enough in terms of affirmative action?

I am a believer in one India. And therefore, there has to be free movement of people within one India. The second is a very difficult choice between enablement and opportunity for a broader India versus meritocracy. And this difficult choice has to be carefully calibrated. We understand the challenges of politics. But for a country to be competitive and efficient, we certainly need some level of flow of people who are enabled with opportunity. But at the same time, if we move away from meritocracy, we run the risk of sustainability. This balance is a very delicate. One needs to find a market mechanism to find an answer. The cost of creating opportunity needs to be taken by the state. And the private sector can give merit, opportunity and be a partner.