Fiscal constraints preclude any meaningful stimulus, says Jeffries

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Updated: August 27, 2019 7:00:46 AM

They may help little in the near-term but it is still encouraging to see the government engage on issues with more steps likely too, especially in housing.

Commercial cars are a smaller part of demand, e.g., and even if the rate on commercial vehicles (already at 30% for purchases before 30 Sep) is extended for the full year, it may cut the purchase price by less than 5%.

With growth sluggish, India’s FM made another attempt to boost the economy with measures straddling taxation, infrastructure, markets, banking/NBFCs, MSMEs and autos. They may help little in the near-term but it is still encouraging to see the government engage on issues with more steps likely too, especially in housing.

Even so, fiscal constraints preclude any meaningful stimulus prompting us to stay cautious amid soft earnings and extended valuations.
With GDP growth slowing to a 5-year low of 5.8% in 4QFY19 and likely even further in early FY20, the clamour for government intervention to boost the economy has risen.

The move to quash the higher surcharge on capital gains that had roiled some foreign portfolio investors and domestic AIFs will help but reviving growth is more crucial. Most of the measures attempted to address this, therefore. Indeed, we like the intent to front-load the Rs 70,000 crore bank re-cap, the one-time settlement policy for MSME overdues, measures to spur banking officers to lift credit growth and more closely monitor delays in payment disbursals by the government and SOEs to corporates.

The government promises to clear all GST refunds in 30 days but just Rs 4,000 crore was stuck as of June 30.

In autos, even the steps to alleviate concerns on the status of BS-IV vehicles and higher registration charges, and lift depreciation benefits for vehicles purchased in FY20 from 15% to 30% may do little to revive demand. Commercial cars are a smaller part of demand, e.g., and even if the rate on commercial vehicles (already at 30% for purchases before 30 Sep) is extended for the full year, it may cut the purchase price by less than 5%.

These may not be enough to spur demand near term, therefore, although at some point, the scrappage policy might.
Indeed, the announced measures contain a long list of procedural improvements that hold promise in the medium- to long-term as does the intent to deepen India’s capital market and spend `100 lakh crore on infrastructure over five years.

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