'Coal, gas pricing solution is nigh. Raise taxes on gold'

The current milieu of optimism is realistic and India will do better in 2013, believes Deepak Parekh, chairman of HDFC. In an interview with Mihir Bhatt of Zee Business, he says the rupee remains the biggest worry, adding retail investors in equities should be incentivised. Edited excerpts:

Is the current optimism appropriate?
We’ll see the impact of reforms this year. And I am confident of higher growth prospects for the next few years. I expect GDP growth of 6.5% next fiscal. The Cabinet Committee on Investment is a good initiative by the government. It will take hard decisions quickly. Remember, over Rs 2 lakh crore of projects are stuck due for clearances. It is significant that the CCI can overrule the decision of ministries, which can get the economy moving.

Is it time to rectify all that went wrong economically?
The investment cycle should begin for growth to pick up. Industrialists and entrepreneurs need to be given the confidence to conduct business. Look at how the National Highways Authority and the environment ministry are going to court over projects. It’s ironical that two separate departments of the same government are fighting. I am hopeful the Prime Minister will take action in the CCI.

What’s your take on the fiscal deficit goal set?
5.3% is achievable. The roadmap set for next the 5 years is realistic. A large amount of unused funds will come back to the Centre and states in March. Direct tax recovery has been very buoyant. And the profitability of corporates will begin to show improvement from this (fourth) quarter.

What about interest rates?
See, there’s too much pressure on the Reserve Bank of India (RBI) governor Duvvuri Subbarao for cutting interest rates. I expect a modest rate cut of about 25-50 bps in the January policy review, though our inflation levels don’t justify a cut now.

What is your expectation from the RBI this year?
We are much behind the curve in cutting interest rates. Capital is available at much cheaper rates in the US and Europe (including hedging cost). I expect the RBI to cut rates by 150 bps in 2013

The general perception internationally is that India can't manage its resources well…
Corruption is a global phenomena. We need more transparency. Take the case of Coal India reneging on its agreement – that’s atrocious. Power plants are lying idle for want of coal. There are issues in gas pricing. The old gas pricing is not viable today. Companies can’t even achieve cost break-even at current prices. The price difference between imported gas and domestic is very high. But my sense is that both coal and gas issues are on the verge of settlement. The Prime Minister’s Office will ultimately intervene. The energy wheel in India will start moving if that happens.

What's your expectation from the equity markets this year?
We got about $23 billion of net foreign inflows last year. I don’t think we will get as much this year, yet equities should do better. But I am surprised that even after so much foreign flows, the rupee has slid. Clearly, weak exports and high gold consumption are the reasons for our current account deficit woes. I expect crude prices to moderate by 10-15% this year. This, and lesser gold imports, will help us reduce the current account deficit.

And the biggest worry in India right now?
It’s the rupee. A weak currency is not good for the reputation of any country. The over-dependence on oil in the import bill is a big challenge. We also need to increase taxes on gold and curb its consumption. Also, trading and speculation in gold has to be brought down.

So is it time to start taxing commodity trading with CTT?
CTT is a fait accompli. It will happen next month, and will help bring down speculation and trades. Trades are happening in such large volumes in commodities, CTT will certainly help.

What about real estate demand? We have seen dip in markets like Mumbai…
The demand in the housing sector is still very high. Demand in Mumbai exists, but affordability is an issue. Here, 60-70% of house cost is due to land cost. If land prices come down then only residential prices will become affordable. There are lots of empty spaces in residential buildings. There is a massive surplus in commercial real estate, due to which their prices have dropped. The same should happen in the residential market.

How will your home loan business be this year?
Expect sanction and disbursement to grow by about 20% this fiscal. Our credit growth base is becoming very large

Sebi has expressed concerns about IPO pricing. Your take on that?
We need to excite retail investors. We can’t let our market run by remote control. FIIs follow a herd mentality. When they exit , they exit in herd which is risky. The retail investor need to be incentivised for revival of the equity markets. The dominance of foreign inflows is too high in India.