Mint BFSI Summit | Bankers bat for job creation, tax incentives in budget 2025

Job creation, tax relief for small businesses, and a production-linked incentive (PLI) scheme for import substitution could be drivers for kickstarting consumption in the budget 2025, said a panel of bankers at the 17th edition of the Mint Annual BFSI Summit in Mumbai on Friday. 

“One of the aspects that can be explored is a progressive tax code for small businesses,” said V. Vaidyanathan, managing director and chief executive of IDFC First Bank. “Under this, say the government can say no tax for income up to ₹1 crore for new small businesses and after that threshold have a progressive tax. That will add a feel-good factor and spur the next generation to get into business.  

The other interesting proposal was to have a PLI scheme for import substitution in identifiable pockets where a manufacturing facility could be set up. Initially, it would be cheaper to import than to manufacture locally.  However, over time, the latter could become more viable than imports.  

“Focus should be on employment, disposable income and consumption,” said Pranav Chawda, CEO of JP Morgan Chase India. “While government spending will be constrained by fiscal consolidation, one of the ways to encourage private spending and job creation would be to have a PLI for import substitution like we have subsidies for exports.” 

On the 4% depreciation of the rupee to lows past 86 to the dollar, Hitendra Dave, CEO of HSBC India, said that too much hype was being generated over the level of the rupee and that the market should be allowed to do its job of arriving at the fair value. 

“We make too many levels, one day 86.60, the next 86.62, and so on… nobody knows the fair value, except in hindsight. The market should be allowed to do its job. Everybody—importers, exporters, etc.—should be made aware that the currency will float, not stay still. The RBI has done an excellent job of growing reserves, a part of which has been used to support the local unit in the spot market and on the NDF (non-deliverable forward) market.” 

JP Morgan’s Chawda also weighed in on the depreciation, saying that there was no crisis post-Covid when the rupee fell from 60 to 86 to the dollar. So long as the move is gradual there won’t be a “problem”.  

“The devil lies in the detail. If an importer has, say, 30% of his currency exposure unhedged whose repayment is after two years and if cash flows from his capacity are to begin after two years, then that will offset the risk of the unhedged position,” Chawda explained.  

On the “slow” pick-up in private capex, Chawda continued that the premise of it not happening was incorrect. He said many of his corporate clients having export-oriented units had set up facilities near their export destinations—nearshoring rather than onshoring.  

“Capex might not show onshore but has happened closer to the export destination, what we call nearshoring or capex offshore. So, to say there is no capex may be incorrect, as it has happened offshore due to business consideration of the exporter.” 

Another burning issue, banks’ widening credit-deposit ratio, elicited a different take from Prashant Kumar, MD & CEO of Yes Bank.  

Kumar explained that expectations of 14-15% growth in deposits were misplaced mainly due to greater efficiency in the utilization of funds by the government and large corporates. 

“Earlier, where government deposits would lie in the banks for six months, they now deposit in the morning by the evening, those would be transferred to intended beneficiaries. Even surplus cash with large corporates rather than being parked in their non-interest-bearing current accounts are now being transferred to their cash credit accounts.” 

In addition, the growing popularity of multiple investment avenues like equity and debt mutual funds and pension funds, which offer superior returns to term deposits, would constrict deposit growth at 10-11%, said Kumar.