Business Standard: What is your assessment of the present political situation in the country?
S Subramanian: There can be no non-BJP government at the Centre without the support of the Tamil Manila Congress and its allies. Irrespective of whichever government assumes power after April 11, we believe that the budget will be passed with some cosmetic changes. However, the turbulence at the Centre has pushed up uncertainty levels and the foreign institutional investors will not indulge in aggressive buying beyond 4000-levels.
BS: When the Sensex crashed by about 10 per cent, FIIs actually bought securities worth Rs 55 crore. Does this show that they are bullish about the long-term?
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SS: When the Sensex dipped below 3400-levels, the valuations for key pivotals were attractive. This is the main reason why FIIs may have entered the market. Everybody is aware that there is no immediate threat to the direction of the economic reforms. However, what is worrying overseas investors is a non-active government which will not be in a position to take concrete steps to achieve healthy growth rates. For example, India needs to grow at the rate of 10 per cent to achieve the desired levels of development. There has to be a net capital formation of around 35 per cent. To achieve this target, the economy needs adequate domestic savings and foreign capital investment in infrastructure.
The main reason why there is no active foreign capital raised in key areas like power, telecom and transportation is due to conservative policy initiatives. The government has to take bold steps like opening up the transmission and distribution of power sector for foreign investors and reduction in subsidies.
The bureaucracy in the country is involved in managing large corporations where the government need not have an active role. Instead, the government should concentrate more on the social sector. It is observed that there is a wastage of at least 75 per cent of the subsidies.
BS: Are you satisfied with the functioning of Sebi and the stock exchanges?
SS: There seems to be a dilemma about the role Sebi has to play in the capital market. The finance ministry is confused whether Sebi should play a developmental role or merely stick to the regulatory role. The two roles can come into conflict.The issuers role also needs to be closely monitored.
As far as stock exchanges are concerned, we are moving towards a transparent system. The foreign investors want smooth settlement cycles and an efficient trade guarantee system.
BS: What is your assessment of the government's disinvestment programme? What is the demand that exists for Indian paper?
SS: The disinvestment programme initiated by the government is a case of a classic dilemma. The political system in India is confused about ownership of PSU assets. It does not clearly state what should be owned by the government and what should not be owned. It should ideally get out of all businesses.
There is a big demand for quality Indian paper abroad.