‘Investments must focus on agriculture, rural sectors’

Top representatives in the BFSI (banking, financial services and insurance) space converged at the BSE Convention Hall on Tuesday to air their views on what they would like the government to do in the upcoming Budget to spur the economy. The pre-Budget panel discussion, a joint initiative by BusinessLine and Bloomberg TV, was aimed at providing a platform for getting the industry viewpoint across to the policy makers. Top honchos from the BFSI space who participated include Harsh Kumar Bhanwala, Chairman, National Bank for Agriculture and Rural Development; Yaduvendra Mathur, Chairman and Managing Director, Export-Import Bank of India; G Srinivasan, Chairman-cum-Managing Director, New India Assurance; M Narendra, Chairman, Assocham National Council for Banking and Finance, and Ashishkumar Chauhan, MD and CEO, BSE. Excerpts from the panel discussion:

There is a growing debate whether the government should stay the course on financial consolidation or step up spending. How will this trade-off play out?

M Narendra: Fiscal deficit has to stay on course with what was earlier budgeted — that is 3.5 per cent. The market and the rating agencies expect the fiscal deficit (target) to be on track even though there is lot of pressure on the government to increase investments. Overshooting the fiscal deficit target may not be good because pressure of government borrowing will leave limited space for private borrowing.

In the last Budget itself the government had directed its spending towards highways and roads. So, similar efforts will be taken in the Budget in terms of prioritisation of spending particularly in agriculture and rural sectors. Global factors such as falling crude prices have ensured that unnecessary spending is capped so overall the expectation is that fiscal deficit will stay on the path.

What impact do you see of tighter monetary policy on spending, particularly in the infrastructure sector?

HK Bhanwala: I would say that monetary policy and fiscal policy need to be in sync to spur growth and there have been efforts in this direction. The challenge for us has to be to contain revenue deficit rather than just focusing on fiscal. I feel in the long run if we have to spur growth then investments will have to be focused on agriculture and rural sectors and I think in the coming Budget there will be efforts in that direction.…There are two types of infrastructure that can really boost the rural economy — roads and irrigation, which have a multiplier effect in the rural economy, which has seen a demand slowdown.

With almost 70 per cent of the country living in rural areas, any slowdown in rural demand has an impact on the entire economy. In recent years there have been excellent efforts in reorienting MNREGA (the Mahatma Gandhi Rural Employment Guarantee Act). This can be steered towards irrigation and watershed projects to boost the rural economy.… I strongly suggest the roll out of broadband and technological connectivity, which is a must for roll out of banking services in these areas.

Falling exports are a major concern...What incentives are you looking at to boost exports?

Yaduvendra Mathur: The global scenario has never been more favourable to India as it is at this moment. The declining trend in exports and imports has to be seen together in the global perspective where the Indian economy’s fundamentals are getting stronger. So the balance of payment is comfortable. Falling commodity prices has given a huge boost (to user industries and the economy). The steps taken (to promote exports) include market penetration and market support under the trade policy scheme which was announced last year has helped companies become more competitive. The Heavy Industries Minister, as part of the Make in India initiative, has announced a capital goods policy, which is extremely encouraging as it will not only promote for the first time the use of Indian capital goods in India but also create the way for exports.

If you look at the decline in exports, what causes the most concern is the decline in capital goods. So, the capital goods policy is a very positive step. Also, there could be measures (in the Budget) for enhancing insurance for Indian goods exported because the country risks continue to be large and if you factor that into the price then Indian companies are unable to respond (be competitive). The basket of Indian exports has to become more complex…So I think in the budget we will see the make in India campaign maturing as a policy because competitiveness of the Indian economy has gone up.

What measures are needed to increase retail participation and increase participation of small investors?

Ashishkumar Chauhan: We need to worry about how we as a nation are creating policies, which are not creating issues in the long run. For example, look at the way we charge securities transaction tax. Not many places in the world have one. If you look at the way we have implemented it, effectively through the charge structure, what the government is saying while investment is good, they are encouraging speculation as the charges are very low. Today, India has become the speculative capital of the world. We have 14 times trading volume after Korea in the speculative market.

The long-term capital gains tax after one year also created tax avoidance mechanism, and you have created a situation where you encourage speculation or tax avoidance.

Today BSE has 30 million investors and today we have to build the comfort for retail investors that their money will not get lost as most people do not like to lose their money and would like to protect their principal. We need to look at providing more risk free instruments like providing government bonds directly to retail investors.

Insurance penetration particularly non-life is very low. Home insurance and personal accident have not seen many takers. What measures need to be taken to promote insurance?

G Srinivasan: Clearly, insurance penetration is one of the major problems that India is facing today. Lot of reforms have happened in the insurance sector — foreign direct investment has moved up from 26 to 49 per cent, reinsurers are coming to the Indian market to set up branches, regulator has been given a lot of powers to promote and develop insurance growth and penetration.

Today, we need to increase the insurance awareness. People today have a false sense of security. They feel nothing will happen to them. So we need to create awareness on insurance and come out with better and simple products and improve insurance distribution as insurance is still sold rather than bought, especially on home insurance because only 1 to 2 per cent (of the population) has home insurance. We have seen this in Uttarakhand and Srinagar floods, Cyclone in Andhra Pradesh and recently we have seen in Chennai floods where 65 per cent of the individuals have lost their household contents but there was no insurance. So clearly there is a need for the government to step in here.

The government has helped life insurance and health insurance by providing an income tax exemption. The government needs to provide some exemption for home and personal accident insurance (premium) of around ₹5,000 to ₹10,000, which needs to be kept separate and not clubbed with other savings as then it gets swallowed. The service tax today also is very high and some exemption can be given on home insurance and health insurance policies.

COMMENT NOW