While the Modi government has set ambitious targets to drive people towards meeting them, the budget's tax goals are achievable, according to Neelkanth Mishra of Credit Suisse.
“The indirect and direct tax revenue growth estimates are more realistic than we have seen in the past,” Mishra, India strategist and co-head of equity strategy of Asia Pacific at Credit Suisse, told BloombergQuint in an interview. The planned initial public offering of the Life Insurance Corporation of India shows that the government is serious about divestment, he said. “While lots of efforts will be needed to convince the unions and getting the company ready for issue, it's a positive target.”
The government expenditure-to-GDP ratio is expected to be higher in the next 15 months, Mishra, who is a member of the Prime Minister's Economic Advisory Council. “What is commendable is that a lot of this expense isn't a factor of tax collections moving up, but due to the non-tax items like divestment receipts and telecom receipts (dues from operators).”
Finance Minister Nirmala Sitharaman didn't announce any big-ticket steps to boost growth, especially to boost the rural economy and the struggling financial services and real estate sectors. She shifted the tax burden on dividends from companies to investors and didn't provide any relief on long-term capital gains tax on equities. Sitharaman budgeted for a record Rs 2.1 lakh crore from divestment, something that will be crucial to meet the fiscal deficit target of 3.5 percent set for FY21 after missing the target in FY20.
According to Mishra, the budget doesn't harm and provides a small growth impulse. The most important thing for him is that it moderates the headwinds for growth. It's unwise to expect all the reforms in the budget, he said, adding that they happen when the government sees the opportunity and the political situation outside the glare of the budget. And there's a possibility of that continuing, he said.
The equity markets will take cues from China does to contain coronavirus outbreak, according to Mishra.
Expectations around India are subdued because the economy is not going to recover very quickly, he said. Even the foreign inflows stem from overseas investors' allocation to emerging markets and not because they invested in India, he said. But the markets may still be fine because of earnings and flows.
For Mishra, the bigger issue is the stress in state government finances. That's because it could slow down growth in salaries and hurt consumption, he said.
Watch the full interview below
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