'A fiscal deficit of under 3% of the GDP is a must'

What should the Finance Minister deliver in the Union Budget 2012-13 to create a good investment climate?

The upcoming Union Budget for Financial year 2012-2013 has importance more than what is ordinarily attributed to this already very critical annual event.

In the current context, the high borrowing cost in the economy has restricted private sector consumption and investments.

Therefore, the main policy thrust of the budget must aim primarily at creating a positive investment climate by reducing capital and borrowing costs for productive sectors.

Recourse to Fiscal discipline by a two-tiered application of frugal expenditure and ingenious resource generation may be required. The government should lay down a path to move towards a fiscal deficit of under 3% of the GDP. In this context, there is a need to revisit the Reddy Committee report of 2004 on these borrowings.

The planned detangling of myriad of taxation laws and rules through GST and DTC too has been stalled.

Policy movement on that front too is highly anticipated in the upcoming budget.

The Budget must particularly seek to emphasize investments in the infrastructure sector, which is in requirement of investments of $ 1 trillion in the next 5 years.

To address this (amongst many things), a comprehensive and strategic outlook on energy security may be needed.

From the capital markets point of view, there is a need for a consolidated trading platform for equity and debt asset classes; operating within a single (or a coordinated) regulatory framework.

The availability of equity and debt assets through a single trading platform may lead to increased penetration and higher capital mobilization within the economy.

What are your expectations for the mutual fund industry from the upcoming union budget?

ELSS has been a highly effective mechanism to popularize equities investment within the retail segment and also promote relatively long-term savings commitment from the investors.

Therefore, the tax-savings status of ELSS must be continued under the new tax codes.

Moreover, the empowerment of the Mutual funds to provide a scheme that allows the investor an avenue to invest for retirement and annuity, is needed. This would also promote long-term savings behavior.

Granting EET status to such a scheme may prove to be an effective feature, and may widen the market participation.

The enactment of the PFRDA and a consequent thrust for bringing it within the EET status would drive long term investments.

Finally, it has been a long standing demand of the industry has been to align the taxation status of Fund of Fund's (FoF) with the underlying scheme, rather than the current - 'debt status'.

An Equity FoF investor is essentially investing in equity schemes, and as such, should be able to avail the tax benefits which would otherwise accrue to him/her, had they invested directly into those schemes. The rectification of this imbalance would greatly improve the acceptance of the product segment, as also bring the FoF investors at par with regular investors.

The author is the CEO, Kotak Mutual Fund