Keki Mistry: In my opinion, the Budget will revolve around three pillars. The first pillar will be growth. Our economy has done extremely well despite all the turbulence that is prevalent in other parts of the world and we have done extremely well because the government has been very focused on reforms and RBI has done a tremendous job in terms of keeping inflation under control. I think growth will continue to be one of the main parameters of the Budget or one of the main goals of the Budget.
The second goal of the Budget according to me will be employment generation and employment generation comes in a big way through encouragement to industries like housing, affordable housing, infrastructure, and so on. Housing has a multiplier effect on the economy. There are close to 278 odd industries that are dependent on the housing sector for growth and housing creates so many jobs not just directly for construction workers, masons, carpenters, plumbers, and engineers, but also several jobs in other ancillary industries. So, the second pillar will be job creation. The third pillar in my view will be consumption, encouraging consumption. We have seen that consumption has come down a little bit in the current year and steps could perhaps be made to increase consumption.
How do you increase consumption? You do it by putting more money in the hands of the people. How do you put more money in the hands of people? Probably by looking at some change in the tax rates.
You are on the board of seven major companies, five of which are listed with a market cap of 30 trillion. How can the momentum be increased to focus on more areas and initiatives?
Keki Mistry: We have covered many initiatives. If we were to cover the six areas that I was talking about, the markets will be extremely happy, more and more jobs will get created. We will also see all round growth from every segment of the society. If we can see some pickup in consumption, then that would go a long way in creating demand. If demand was to increase, then manufacturers will need to produce more to satisfy that demand.
In order to produce more, they will need to create more and more jobs. So, it then becomes a self-fulfilling kind of a proposition.Leave that reduction in household savings and the rise in household debt burdens are causes for concern and economic stability and can these issues be addressed?
Keki Mistry: First of all, it is true that household savings have declined a little bit and that household debt has gone up a little bit. But we must not take one year as sort of an example of what is happening in the economy. If you look at 2022 with the onset of the Russia-Ukraine war, oil prices shot up globally and because oil prices shot up there was inflationary pressure that we in India also saw.
As I said earlier, RBI did a fantastic job in terms of bringing inflation under control. But nonetheless some impact of inflation is still being felt by the common man. So, on one side, you have seen core inflation is down to 3.13%, food inflation has been high, food inflation is not very easy to control because it is dependent on so many factors where we do not necessarily have control.
As a result that has resulted in savings coming down because a lot less money is available for people to save in this situation. But going forward, I expect that to change. I would expect savings as a proportion of the household savings to increase and I would expect the proportion of financial savings to household savings to also increase. So, while overall household savings has come down a little bit, the proportion of financial savings to overall household savings has come down a lot more, I expect that to correct.
The cut in corporate tax has yielded positive results for the economy and for India. How do you think the government should now be approaching individual tax rates?
Keki Mistry: My experience over the years in not just seeing in India, but seeing in many other countries globally, is that when you reduce the tax rate, you automatically one, improve compliance significantly and two, you create that greater urge to work and earn more income. So, reduction in tax rates, whether it is a different tax rates and also at the highest marginal tax rate, will go a long way in improving sentiment, include increasing productivity, and at the end of the day, also resulting in higher savings and increasing consumption.
Economic cycle has been led by capital expenditure while consumption has lagged. How can the middle-income population be targeted and are there any measures which you think they could boost consumption?
Keki Mistry: Consumption can go up if people have the wherewithal the financial savings to be able to spend more. And I think, as I said earlier reduction in tax rates will automatically facilitate consumption. I think we need to understand that consumption is…, today what has happened is high-end consumption is very strong, low and middle level consumption has been relatively weak. So, some measures could be taken in the budget which would improve the low and middle level kind consumption. It could be a variety of ways to do it. It could be some reduction in GST rates at the lower end (5:24) for some of the more products which are consumed by the common man, there are various ways in which could be done but I expect something like that to happen.
While luxury housing has been booming, affordable housing has still seen muted growth and it has been the case in the last recent quarters, do you expect any government support to boost this particular segment?
Keki Mistry: In my opinion, yes. In my opinion, the affordable housing segment will again get a boost because of the one is obviously it helps the people but equally importantly it helps the economy because of the amount of jobs that will get created not just in housing but also ancillary industries. But when you talk of high-end housing, you must remember one thing that the period from 2016 to 2020, almost a five-year period saw a very muted growth in high-end housing. Post the latter part of 2020, the last three-and-a-half or four odd years are to some extent making up for the slowdown that we saw in the 2016-2020 period.
Do you foresee housing growth occurring primarily in big cities or do you think that we will see tier II and III cities as well contributing?
Keki Mistry: The demand for housing will come from all over the country. We are extremely low in terms of penetration of housing, the mortgage to GDP ratio in India is still around 11 odd percent which is forget the western world where it is much-much higher, but even compared to some of the emerging markets we are still very-very low. So, demand will be there, demand is there from all over the country, whether it is tier I cities, tier II cities, tier III cities and I think the growth opportunity in the tier II, tier III cities will be even higher in the years to come because I think there may be some kind of incentive in the budget for the affordable housing segment.
Do you think the interest rate cycle has peaked and could a fall in interest rates than boost consumption and how much of a rate cut do you anticipate this fiscal year?
Keki Mistry: It is very difficult for us to take a call on interest rates per se because it is dependent on so many factors which are not entirely in our control. So, whilst core inflation as I said earlier has come down to 3.13%, certain items of the product basket continue to be very sticky in terms of inflation, one of which is food inflation which is what is impacting the common man. Now, food inflation is dependent on many factors and some of these factors are not entirely in our control, how do monsoons play out and things like that.
Fortunately, from whatever we have seen in terms of data, the monsoon outlook for the current year will be normal to above normal which should clearly facilitate, of clear result in lower food prices and that to my mind will be the trigger that the RBI would probably need to look at reducing interest rates.
Now, the quantum of reduction they do is more a matter of how inflation numbers pan out, geopolitical factors, oil prices, and so on. My personal view is that the first-rate cut you will see, personal view, will be in the October to December quarter and then thereafter it is going to be so much dependent on what the data shows up.
As a chairman of HDFC Life, how significant is the announcement of a composite license for the insurance sector? Could that change the dynamics of the insurance sector?
Keki Mistry: It is the call HDFC Life will have to take whenever the rules are framed and the law is in place. I think a composite license will be an option that will be available to a company to pursue if it so wishes. It is something that will require very detailed deliberation in the board meeting.
But I must compliment IRDAI and for that matter all the financial service regulators in India because they have taken so many initiatives in terms of creating an environment that makes business processes easier and number two facilitates growth. If you look at insurance in particular, IRDAI has massive plans in terms of making insurance possible for all Indians by 2047. So, I think there are many measures which are around the corner and I think all these measures taken together will result in a sharp increase in the quantum of insurance in India.
Recently, the regulator also highlighted the high volume of activities in the equity F&O segment, do you think any measures will be taken to address these in the budget?
Keki Mistry: The SEBI chairperson has also mentioned something about the F&O market. I frankly do not have the expertise to talk too much about it. But yes, I do hear from market sources that the F&O activity has become a little worrisome and I am sure SEBI is on top of it and trying ways and means for making sure that the system is properly regulated and there is no problem that we face.
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