‘GST Reforms Will Boost Discretionary Spending’: Enam’s Sridhar Sivaram

The overhaul of the Goods and Services Tax (GST) structure by the government earlier this week will leave people with more disposable income, leading to a big impact over a period of time, according to Sridhar Sivaram, Investment Director, Enam Holdings.

“We've been saying earlier that a direct tax cut benefits only 2% to 3% of the population, whereas any change in the indirect tax benefits 140 crore people and has a far-reaching impact. So, I'm happy to see what has happened on the GST side because this will have a much greater impact, but over time,” he said during a conversation with NDTV Profit on Friday.

However, he cautioned against expecting any immediate results.

“I think the problem is the market often expects everything to happen the next day. That may not happen. Markets will play out over a period of time. We have a lot of other issues on the geopolitical side, or on the macro side,” he underlined.

Sivaram predicted an expected shift in consumer behaviour after the GST rate cuts. He outlined that reduced expenditure in one segment may boost consumption in other sectors.  

“I have saved some money. I was anyway supposed to buy a two-wheeler or a four-wheeler. I'm not going to buy another one, but I can use it to repay a loan, so it's a second derivative impact. I'm not going to change my consumption view because something has happened, but I do have surplus in my hand and how that plays that is more critical,” he explained.

Another second derivative impact is that it will hurt capex by both the central and state governments.

“This has to come from somewhere. Our understanding is that this comes from a reduction in capex spending, not only from the Centre but also from the state. You're reallocating money from one to the other,” he noted.

The investment management expert also cautioned against the probable impact of reduced capital expenditure by the government on employment. The shortfall after the GST cut could be compensated through asset sale, he suggested.    

“I would have been happier if they had done an asset sale, like PSU divestment, some privatisation and use that asset sale proceeds to give a bonanza,” Sivaram said.

He compared this to the impact of the recent income tax cuts. “In the overall scheme of things, it didn’t add up much,” the Investment Director observed.

“Maybe at the lower end, if you have to take a guess, I would say discretionary spending would benefit,” Sivaram said on the possible impact of the GST rate cuts.

He also predicted the GST overhaul may reduce Consumer Price Index (CPI) inflation by at least 25 basis points.

“It should have an impact of about 50 basis points on a durable basis. Now, will the entire 50 basis points stay? We are assuming at least 25 stays because some price increases over a period do happen.”

On monetary policy, Sivaram predicted another 25-basis-point rate cut by the Reserve Bank of India (RBI), provided the US Federal Reserve continues its easing cycle and the Rupee remains stable.

“I think the Joker in the pack here is how Rupee is behaving. We think that another 25 basis points, RBI will have the room,” he said.