'Foreign banks should be permitted to form subsidiaries'

Mahendran Moodley, CEO and Country Manager, FirstRand Bank India, says foreign banks can play a more meaningful role in the domestic economy in India and also help reduce the government's constant need to make capital calls into state banks.
 
Given the current challenges, what, in your opinion, would make for a good budget ? What measures or proposals would you like to see?
The challenges facing the country include high inflation, a weak rupee, large current account deficit, high fiscal deficit, low growth rates and slow pace of reforms. We would like the budget to ensure that the growth engine gets enough impetus while reining in the fiscal deficit. We would like subsidies on petroleum products and fertilisers to be pruned further, if not removed altogether. This could free up valuable resources locked up in subsidies for growth oriented spending.

We would also like to see the Aadhar scheme take off so that transmission losses in government payments are saved. Reforms should continue and the government's role in the economy reduced. Disinvestments should gather speed and the banking, pension and insurance reforms should get passed in the budget session. We would like stability in tax structures as any upward move would upset the sentiment in the market. Hopefully, the passage of the GST (Goods and Services Tax) Bill would see more growth and revenues for the government.
 
Given the constraints the government faces in raising revenue, do you see a case to increase income tax rates on the rich?
Despite the constraints the government faces, it may not be prudent to raise taxes in the country. It is not appropriate to compare the Indian economy and its tax structures to say, the US or UK. In those countries, there are no indirect taxes like excise duty, customs duty, service tax on the scale that India has. So, the overall tax citizens of India pay, including indirect taxes, is very high compared to Western countries. Secondly, other countries have unemployment benefits, medical benefits and pension plans, which India does not have. With no Social Security, Indians have to save up and fend for themselves in their old age. Thus, it may not be prudent to introduce higher taxes. Rather we should widen the tax net and bring agriculture under the net as it is currently completely free from tax, without any limit.
 
We should also focus on implementation of tax in a wider way. The government should tax dividends at a much higher rate than the current dividend tax rate of 15 per cent. There should also be a move to tax long-term capital gains marginally as there is no tax stipulation at present. It may also be prudent to ensure that the introduction of estate duty be retrograde as it would deter anyone from creating capital both at the individual and corporate level.
 
If the budget does not meet expectations, do you fear that business sentiment would once again dip?
Yes, if it does not meet expectations, I fear that the fragile and recently built-up sentiment may again dip. One could also see rating agencies getting nervous on revenues and the fiscal deficit. The possibility of the country being downgraded would resurface.
 
Specific to your sector, what could the current budget do to improve conditions?
Banking reforms need to be speeded up. I also hope foreign banks are permitted to form subsidiaries for their Indian operations. And that such subsidiaries get increased access to branches and alliances and to the capital market, as well as permission to buy other banks. Foreign banks can play a more meaningful role in the domestic economy in India and also help reduce the government's constant need to make capital calls into State banks.
 
Which budget, in the recent past, do you remember as having been a good one?
I can't remember any particular budget in recent past being exceptional.