Sucheta Dalal :Economy: Finding Solutions
Sucheta Dalal

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Economy: Finding Solutions  

June 2, 2009


With finance minister Pranab Mukherjee saying that a full Budget will be presented in July, corporate India is desperately hoping that the taxation atrocities of his predecessor, P Chidambaram, will be scrapped. A TV channel claims that the Fringe Benefit Tax may go. Clarity over short-term and long-term capital gains tax and eliminating several of dual-tax interpretation issues that have been a big tool for harassing companies are part of the wish list. I spoke to Kalpana Morparia, CEO JP Morgan, one of sharpest minds in Indian finance on what she expects from the new government and whether market expectations about reforms are too fanciful.

She says that a lot is expected on the infrastructure front, but, on the financial front, foreign banks are unlikely to get more freedom. Privatisation of public sector entities also may not happen in the first couple of years; however, there may be quick follow-on issues by listed companies or initial public offerings from Oil India Limited, Bharat Sanchar Nigam Limited and National Hydroelectric Power Corporation.

The big item on Ms Morparia’s wish list is oil pricing. She says, a simple strategy can help the government move towards market pricing and still meet its social objectives and subsidise kerosene for the poorer people by creating a separate pool to fund it. “The minute the government announces market pricing for oil, the three public sector oil majors – Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation – will immediately be re-rated by investors.  When that happens, the government can make a follow-on issue at the re-rated price of these shares and put the money raised in a fund that will be used to provide a direct subsidy for kerosene and diesel that is supplied to those below the poverty line. I genuinely believe that we need to sort out the oil subsidy issue one way or the other, because there is too much arbitrariness. What happens if oil prices shoot up again when you are very close to an election?” she asks. Uncertainty on the oil price front makes it difficult to manage the fiscal deficit and hurts the sovereign credit rating. This, in turn, affects the prospects of Indian companies wanting to raise funds. Ms Morparia is also concerned that the Indian government seems uninterested in explaining its policy actions to rating agencies; she believes that this hurts India’s rating. “One of my pet theories is that because the sovereign does not borrow, it doesn’t care about the rating agencies. That is hurting India. Can you believe that India is rated BBB- while UK is AAA, even in this situation?” These are sound suggestions that have nothing to do with narrow corporate or sectoral interests. Will the government listen?

-Sucheta Dalal

-- Sucheta Dalal