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    Last time, the finance minister did not even mention the fiscal deficit number in her speech. But this time around, is it a given that it is going to be challenged for what I guess is going to be extremely crucial?
    Yes, absolutely. Every time, it has been “do not cross the red line.” But this time essentially crossing the red line seems to be kind of a given. The question is for what do you cross the red line? Is it because of the shortfall in revenues or is it going to be more about spending to boost infrastructure and ensure that infrastructure projects go off the ground? Are we building world class infrastructure or is it basically expanding the social welfare schemes? That is really what the market is going to be more interested in. It is going to be the big area of focus for the markets -- be it debt markets, be it equity markets.

    Even cues on growth are going to come from the fiscal deficit numbers. Just saying that we will probably grow at 6-7% may not satisfy the markets and it is going to ask what is that fiscal deficit number that you have?

    So a 3.5- 3.8% kind of range is something that the market is okay with?
    Yes, as long as you are optically below 4%, which means that even if it were to kind of go to a 3.9%, it should be fine, provided the market sees that a lot of that slippage is going to happen because there is going to be a huge impetus towards infrastructure build up and getting towards that Rs 100 lakh crore infrastructure spending which the government has already announced. That essentially is going to be the big number to watch out for.

    We have seen how the corporate tax rate cut puts a floor to Nifty. Could the same happen if indeed LTCG is tampered with now? I know expectations are anywhere from it getting extended to three years to a complete abolishment. In both the scenarios, what could be the possible market move?
    There are two things. Some of these taxes act like cholesterol in your body. So, the imposition of the LTCG was essentially like having high bad cholesterol and you need to basically address that issue. It does not necessarily mean that it will lead to good cholesterol but essentially this is something which was unwanted and the first philosophy of the Budget I would expect it to be something that would do no harm. In 2018, the Budget saw the imposition of LTCG and in 2019, the tax on the super rich.

    The first principle which I would expect is to do not anything like that. Number two, the imposition of LTCG tax has not helped in any way, Forget the kind of impact it has had especially on the mid and the smallcaps, eliminate that. I think that is something which will send a lot of right signals especially to the international investment community because I am told that if you are a foreign investor in the US equity markets, you do not pay LTCG on those gains out there.

    Similarly, some of the foreign FPIs will also be expecting that LTCG be removed and that essentially will be the big tax reform. It is something which the market is looking forward to and I hope this Budget obliges the market on that front.

    We can endlessly get into this scheme, that scheme, this yojana, that yojana. For me, the messaging is important and that got lost in the last budget.
    : I will just build on from. The Prime Minister himself when he went to the United States publicly said that taxation on equities could essentially be brought at par with whatever are the established practices world over. Even at the 15th August speech, he said we need to respect wealth creators.

    And the gap between personal tax and corporate is so large that somebody needs to address this gap.
    The philosophy now seems to be there. These are coming in from public statements. One is now looking forward to the Budget to see whether the government is going to walk the talk on this front or not.

    It is a chicken and egg situation, isn't it? Can the government afford to bring taxes lower, given that there is a complete miss on direct taxes and GST collections? Can it go ahead with a solid disinvestment process where valuations for PSU stocks are low? Would it be a very wise strategy?
    The way I look at it is that I am not sure how much has essentially been the collection from LTCG on listed equities, ever since it was imposed.

    That is a low hanging fruit which could be plucked?
    I am just saying is that that will do no harm to the government as well as in terms of revenue collection. That is something which can do a lot more good, at least in terms of ensuring that the spirits remain high and sentiment remains positive. It is going to contribute more towards that and will not take away any of the revenues from the government. In terms of personal taxation, even this year, if it is given a go by, that should be fine.

    You are happy with 42%?
    It is not a question of being happy, what I am saying is nobody is ever satisfied with any of the taxes which are imposed on them. That is a given. The question is we are in a tough situation right now. Of course, it is lowered, great! That is a huge gamble the government is taking and probably the Street might look at it positively saying is here is a confident government which says that I am lowering taxes but lower taxes will result into higher revenue collections! That would be a great signalling.

    But I am not too sure whether that will be done or not versus that the LTCG is a way more easier option. Number two, government should , encourage buybacks. There are enough studies which say that the US equity markets over the last 10 years have had a remarkable sprint and a huge contribution to that has come in basically from buybacks.

    Apple as a company over three, four years has seen no major growth in their earnings, but look at the stock price. It is a prime example, it is putting the capital to work. For a lot of companies, especially the smaller ones, which are sitting on Rs 200-300-500 crores of excess liquidity, are not doing buybacks becauses of the taxes on a buyback.

    I am just saying remove those kinds of policies so that money essentially goes back to shareholders who in turn are also consumers and that money will probably go back as investments or in the consumer market. These are some of the things which are not contributing in a significant way to revenues but can be set right. This is very, very important.


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