Huge Pressure on Jaitley to Deliver in Budget: Samir Arora

There is a "lot of pressure" on Finance Minister Arun Jaitley to deliver in his first full-year Budget due this Saturday, Samir Arora, fund manager, Helios Capital told NDTV.

"I think it's a big deal. There is a lot of pressure on the government and I hope there is pressure and they do a few things," Mr Arora said.

Mr Arora believes the fiscal deficit target for the next year should not be kept too low and the government should rather focus on spending to give a thrust to growth and the private sector.

Here are edited excerpts from his interview:

In a big picture sense what we are all looking for now is last year in July, they (the government) accepted a fiscal deficit target which I think was too aggressive particularly because it had been set by somebody from a different government who had no plans of being there or expectations of being there to fulfil them and so I would think that whatever I have understood in the last month in terms of evaluating what should happen is that they should stop worrying too much about fiscal deficit.

I think they would definitely meet the 4.1 per cent number because they have said it again and again but from here on maybe they can do a 10-20 basis points lower for next year and use all other savings which I guess they will now have on oil and other accounts to kick-start their own spending on infrastructure, basically creating assets, because there is no capacity in the private sector for the same.

So today I would think that is the number one, but there can be few other things here and there.
It's like a banker gives you money when you don't the money so once everybody understands that you don't have a fiscal problem because oil is good now we say that we are not interested in that actually we are interested in spending so it's always like that.

Private Sector
Because the current infra projects set up by private sector have not come to fruition they are not producing results for whatever reasons and they are leveraged. If you look all the large 5-10 corporates I don't think they have any capacity, plus we hear although I'm not 100 per cent sure but we hear that so many contractors' bills are stuck and their money is stuck because of trying to reach the 4.1 number. So next year hopefully upfronting all that the government should release (these).

Government Spending
No, there are not going to contract, it is very clear to everybody that the private sector cannot kick-start. Maybe they can take over when they see some other activity. So, right now that looks like the simplest thing to focus on.

Fiscal Deficit Target
They are not going to raise it because there is a big saving on oil account, they have hiked excise on oil so many times and in general it's a saving. I don't think there is any logic in saying 4.1 will be increased to 4.2.

That also we may have accepted if oil was still $110 (per barrel). Now I think it would be a fair outcome would be that you're not using the entire saving to bring down fiscal deficit either faster than what you thought otherwise. Just spend it and kick-start growth and from that you get taxes.

Next year don't keep an aggressive target and don't put all the savings.

Where Government Can Spend
They (government) can spend what looks easy, on Railway and on roads because power and all what can they do when already existing power projects are stuck, so maybe you can just help them. But in your own direct spending I would think these are the only two we could grasp as easy to spend and which makes a difference, creates jobs, has a multiplier effect whatever infrastructure so I would think that's why Railway stocks have done well, we also bought a few in December-January.

Right now if the work is done by government therefore it will become more of an EPC (engineering, procurement, construction) type of business and EPC type of business is not so attractive from a stock market point of view because very low margin and you are basically doing some manual work, so it doesn't have that same aura, the same valuation.

I think the easy one we feel is financial. Financial is the one where, it looks like the biggest beneficiary of anything, without being overly specific because you know the general this thing of growth, if some contactors' payments are made, if somebody's stuck project gets approved or gets implemented.

All of that directly indirectly helps the financial sector because they are exposed to those sectors, the growth and the interest rate cut. Right now nearly 50 per cent of our fund is in financials.

Banking Sector
In the Budget they can't do much, the only thing we believe they can do is to encourage deposits and to make them comparable with mutual funds, which again the government has said three year deposits or five year deposits, I would say five years is too long, three-year deposits be tax free, the interest on that. Because right now what happens is somebody who is a bit more savvy, let us say that the guy who goes to a mutual fund is a one degree, actually quite a few degrees more savvy than a guy who puts in money in bank deposits. And also the banking sector has not seen deposit growth. Last year growth as some 11-12 per cent and in general we want people to go into financials although you may say that people who are not yet in the financial sector are not going to pay taxes anyway, but in a big picture sense you can normalise these things.

That can be one thing, they can also change the definition for priority sector so that bigger housing loans are approved. Right now it's Rs 20-25 lakh, it can be made to Rs 40-45 lakh.

Taxes
As long as they don't increase these taxes on liquor or cigarettes too much which would put pressure there I don't think there is much directly that you can do.

Now they have freedom because of oil that they don't have to go after everybody.

My suggestion to the government has been to cut down short term capital gains to zero. There is nobody who's hurt and everybody benefits. So the hurt can only be on paper that we were paying Rs X crore at short-term capital gains, and we won't.

If the government if it wants to be seen as not giving any benefit to the market because it is to traders or whatever they can charge STT (securities transaction tax)equivalent to what they believe is their annual collection for the last five years. I know it would be near zero maybe Rs 2000 crore.

Mark up the STT and you save on everything. First the fact that instead of dealing with 100 companies from Mauritius you will deal with 15 or 20 companies doing FDI or private equity or whatever and same thing with Singapore.

Focus on DBT
Spending on social schemes you see quietly the food security thing has disappeared. Again where it has disappeared nobody seems to know, I don't think anything happened. I think only focus on the direct benefits transfer is enough.

Now what all we are saying and everybody is saying is that don't use the savings to bring down deficit to the full level or whatever level. You will have your normal growth but if you're saving 30 billion doesn't mean that 30 billion should be saved and say our fiscal deficit is 3.6, make it 3.9 and spend for the moment because it will help rural economy, jobs of construction and labour and overall that is the only way to start the growth otherwise it will remain in these 3 sectors, 2 sectors, not really growth but just because they are in these defensive sectors

RBI rate Cut
RBI is going to cut more than normal, because right now if you look at it all the expectations on oil they are $40-50 to $60 also another thing which I read somewhere that they should not make the Budget on $50 (per barrel) oil or whatever, it should be made on $75 ...$10-15 more than what the price of the oil is one the day of the Budget.

Many Economic Issues Solved
The point is that the specific right now is...all the other things have been solved, no?
Your inflation, is solved so what more can you do; your currency is solved, so what more can you do in terms of doing schemes ...it's all done.

You've got a gift, now the only way to look at it is how that gift used. That gift can be wasted by saying we are doing social spending or some scheme or food or whatever or you can say I am going to bring it down to the fiscal deficit line or you can say fiscal deficit I will do a little bit and I will keep a little more conservative assumptions about how much I am saving but the rest I will spend.

In that spending the confidence is because today the Rail Minister is good and he is a visionary and he may have lots of projects that look logical to the world so right now that has become the focus.