Budget 2017 will be important for markets as the government is expected to reverse the slow down seen in the last two quarters, says Sahil Kapoor of Edelweiss Broking.
Budget 2017 will be important for markets as the government is expected to reverse the slow down seen in the last two quarters, says Sahil Kapoor, Chief Market Strategist at Edelweiss Broking. In an e-mail interview with Financial Express Online’s Smriti Jain, Kapoor says that GAAR, in its current form, has left a lot of ambiguity and uncertainty in its practical application. He believes that the government will focus on reviving consumption-led growth in the Budget. Edited excerpts:
Everyone expects the Indian economy to slow down post demonetisation. What steps can the Finance Minister announce in Budget 2017 to spur growth again?
One of the focus areas should be expenditure in social sector and infrastructure. We think that spending from budgetary resources will be tilted towards boosting consumption, with rural (MNREGA, roads, housing) and social sector (education, health, etc.) being the key focus areas. Central government spending in both these areas has been scaled back by ~0.7-0.8% of GDP each in past 5 years. Thus, some revival is now necessary.
Implementation of GAAR is looming as well. What are the key things that markets will watch out for in the Budget this time?
The government has already provided clarification on various tax provisions, especially related to foreign investors. However the government should focus on providing more clarity. GAAR, in its current form, has left a lot of ambiguity and uncertainty in its practical application. In light of the current economic environment and the focus of the government to attract foreign investment, GAAR may be further deferred or made more palatable for foreign investors.
Will Budget 2017 be a big market mover or are elections likely to decide the market course to a greater extent?
Budget 2017 is going to be important as the government is expected to reverse the slow down seen in the last two quarters. The adherence to fiscal deficit targets may be relaxed and spending on social sectors along with an increase in infrastructure spending is expected. The capital expenditure by private sector has suffered over the last few years due to excess capacity. The government has tried to balance the decline in private investments and we expect it to continue this trend.
What are the expectations with regards to GST in the Budget?
We expect the government to provide an appropriate date of enforcement of GST, clarification on which goods and services fall under which brackets and projections on possible tax collections for FY18.
Will Budget 2017 be populist, reformist, or a balance between the two approaches?
We expect the budget to be a balanced one. The government is expected to adopt prudent expenditure on the social sectors and also do capital expenditure. The government’s focus on bringing targeted reforms is expected to continue. It would be prudent to focus on factor reforms of land and labour once capital reforms like GST and note ban are structured and benefits factored in.
Should Budget look to up public investment? What can be done to get the private investment cycle to pick up?
Over the last few years the private investments to GDP ratio has declined from a peak of over 14% in 2007 to nearly 8% in FY14 and is possibly even lower today. The government has tried to counterbalance this effect by increasing investments over the last two years. We expect the government to continue this trend. In order to revive private investments, there has to be an availability of robust demand, which would push companies to reach higher utilization rates and thus capital expenditure. Government should focus on reviving the consumption side of the economy.
Any out-of-the-box idea that you would like to suggest to the Finance Minister?
A move towards a direct tax code or a possible roadmap that would complement GST over the next few years.