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3.3-3.5% fiscal deficit okay for bond mkt: Saurabh Mukherjea - Securities, talk to ET Now about Budget expectations.Edited excerpts: Is the obsession with the fiscal deficit overdone? Even if they come with 3.5% for FY19 and they do let us say 3.2% for FY20 which is where the focus is, is that really a big miss? Saurabh Mukherjea: The way to think about it is the budget is a far more important event for the bond market than for the stock market. I really cannot see how an interim budget, just before the election, can move the stock market. But I think the bond market is in a sensitive juncture. It is almost as if the FM would have called up the Federal Reserve to say a thank you for the Fed policy earlier this week for calming down bond markets. But if the fiscal deficit is between 3.3% and 3.5% for this year, the bond market should be alright. The FM is highly likely to announce some sort of a scheme for the poor and specifically for farmers, what sort of adverse impact it has on the bond yield is up for question therefore the FY20 fiscal deficit projection also becomes sensitive. The stock market is a side show today the focus the on 10-year bond yield and the impact on the FX market I think those are the star attractions of the day rather than the stock market for a change. It is already in the price I guess that it is going to be an election budget this time so in that sense how relevant would it be for the markets?Rajat Rajgarhia: From the beginning of this year, people have been talking about some kind of packages for far more rural which will come and there have been enough indications about fiscal deficit from the government that we can see some adjustment. What is important is I do not think markets will be so much bothered about 3.3% or 3.5%. What is important is what are the underlying assumptions that goes behind the revenue numbers. I somehow think that FY20 is going to be a very positive year of revenue collections both at the direct and at the indirect level. It definitely opens up some space for the government to provide some kind of a stimulus and besides... What gives you that optimism on the revenue collection side because GST has underperformed so far and lagged estimates. We have been okay on the direct taxation side but what can shore up revenues? Rajat Rajgarhia: There are three things that we are focussing on; first I think every year on the personal income tax collections, you are seeing the number of filings and the growth itself being quite good. Second, we are surely believing that the corporate tax collections growth will become good because a lot of the loss-making sectors are going to be profitable next year onwards so they start paying more tax and the third, this year GST has its own share of issues. From a base of Rs 96,000-97,000 crore next year, it would be fair to assume that you can look at about 12-13% growth. So always remember when you have 13-14% revenue growth and your cost does not grow in that proportion, as corporates get the operating leverage, government also gets the operating leverage. One number which is important number and linked to stock market is the disinvestment target. Last year, they achieved it, this year they are struggling. For the fiscal deficit to look better, the disinvestment number has to be a fat one. How will the market react if we get a number of Rs 80,000 crore or Rs 1 lakh crore?Rajat Rajgarhia: Last year, Rs 70,000-80,000 crore kind of a number has been on the paper and we have seen transactions which have happened to meet those numbers. Markets definitely take some of these numbers with some pinch of salt but a couple of strategic sales or a couple of sales which are purely financial investments for the government can help them meet that. But the markets are more or less expecting the number to be in the same range of Rs 70,000 to 80,000 crore. What could be that one big idea which would make markets happy? If you talk about social security, we all know that something would be coming before election. If there is a fat assumption on disinvestment, we know it will be a fat number of disinvestment. If there is an optimistic assumption on revenue collection, how you will mask the numbers? What could be that one big outside idea which the government currently could do? Rajat Rajgarhia: Originally this was supposed to be an interim budget, but the interim budget is becoming an exciting budget now. There are enough ideas which are going to be put into this budget to make it very exciting right now. There are couple of things which I must mention since we represent capital markets; Some element of rethinking on what they introduced last year on LTCG which has not worked well. People have given enough feedbacks. On corporate tax collection, they have been on record saying that for a large part of corporates, they have reduced the rates but for the people who are in the higher turnover category, that is yet to be done. I do not know whether that will happen today or not but I think reaffirmation that that is something which is on the way definitely provides lot more impetus. And thirdly, we have largely relied on the public sector capex over the last few years at some point of time public capex has to stimulate the private sector capex also. Again these are some very high expectations that I am making but no harm in making expectations right now. So far we have done disinvestment worth Rs 40,000 crore. There are some sales in the works, Bharat CPSE ETF, etc. What is the divestment target that you are working with? Saurabh Mukherjea: In order to reach a credible fiscal deficit number for FY20, it is difficult to see where the revenue upside is. I cannot see how the FM can have a lower number than Rs 80,000 crore for next year which in turn will lead to scepticism.If the FM really wants to excite the market, the word starts with the letter P, privatisation. I do not even think he has to say what he will privatise. If in a pre-election budget you just say you are looking for privatisation, a lot of people will go wild with excitement in Bombay. That is one of the luxuries of a pre-election budget. Do you think in an election year he can do that? Saurabh Mukherjea: Well he does not have to name the entity right. He reaffirms the commitment to privatisation, gets industrialists excited and the markets excited. More importantly, I cannot see how he cannot have the Rs 80,000 crore target. It is a tough year to make the maths work. You have to give money to the poor before the election, but that will make the markets cynical. If you want to overcome the cynicism especially on the bond market yield, I think have to highlight something around privatisation. My only fear with any kind of social security scheme is that you cannot take back what you have already given. Politicians give a lot but they cannot take anything back. So this entire view which some economists have that he would be balancing it by cutting some subsidiaries here, some subsidies there, pushing expenditure to the next year. I do not think the number will look like that. Saurabh Mukherjea: That is exactly my challenge. I cannot see what he can cut. You cannot cut anything. You do have to give something more to farmers given all the data they have collected that the farm vote is drifting away. They will have to give something to the farmers. You have got nothing to cut and therefore you have extra spent number. You will have to offset. My hunch is they will offset it with some sort of positive announcement.
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- February 1, 2019
- The Defence Acquisitions Council, DAC chaired by Defence Minister Nirmala Sitharaman approved indigenous construction of six submarines worth 40 thousand crore rupees. It is the...
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- Prime Minister Narendra Modi's government is expected to try and shore up its political support with big ticket farm giveaways and tax cuts for the middle class in its final federal budget on Friday, months before elections.Modi is facing growing discontent over depressed farm incomes and doubts over whether his policies are creating enough jobs. A local media report on Thursday quoted a government survey as saying the jobless rate was the highest in at least 45 years, putting further pressure on the government.Piyush Goyal, the interim finance minister, will present the 2019-20 budget to parliament, in the absence of Finance Minister Arun Jaitley, who is currently in the United States for medical treatment.The government is set to step up rural welfare spending by 16 percent for the fiscal year beginning April to 1.3 trillion rupees ($18.25 billion), two government sources said, aiming to boost support in the countryside where more than two-thirds of India's 1.3 billion people live.The budget, which is interim and is likely to be followed by a full one in July, is expected to project economic growth of around 7.5 percent for the next financial year, while expanding capital spending on railways, roads, ports by 7-8 percent, and estimating an increase in revenue of about 15 percent, officials said."The country's macroeconomic parameters are very healthy, the GDP growth has been very good," Gopal Krishna Agarwal, the ruling Bharatiya Janata Party's (BJP) spokesman for economic affairs, told Reuters."It will be an important budget as far as the future course of action for some sectors and segments of the economy, that need support, are concerned. They will definitely find a place in this budget, like agriculture, employment and the middle class."He said rules for small and medium-sized businesses and the manufacturing sector could be "tweaked to address issues such as liquidity, credit, capital formation, demand creation, attracting more private investments".Stung by opposition parties' victories in three state polls in December and needing to call a national election by May, Modi has already exempted many small businesses from paying taxes under a unified goods and services tax (GST).The government is now considering raising the income level at which people need to pay personal tax, long a demand for the country's influential middle class."The pressure to further expand the farmer welfare programme ahead of the 2019 elections is high for PM Modi," said CLSA India.More than 900 million people will be eligible to cast votes in the world's biggest ever democratic exercise and the pressure to woo them is intense.Rahul Gandhi, the leader of the main opposition Congress party, is closing in on Modi's lead, according to polls. His promise of a minimum income for the poor has increased pressure on the government to make populist announcements in its budget.The electoral compulsions mean that major economic reforms, such as tax cuts for bigger companies and plans to bring down the budget deficit, could be put on hold at least until after the election, government sources said.The higher spending, along with a shortfall in tax collections, will push the fiscal deficit up to the equivalent of 3.5 percent of gross domestic product for the year ending in March, overshooting a previous 3.3 percent target, according to one of the sources with direct knowledge of budget discussions.That would fit with the expectations of a Reuters poll of economists.The source said there was a chance that the government could take corrective action in March, with an expectation that the election schedule will be settled by that time and that public focus will shift to campaigning."In our view, with the upcoming polls gaining precedence, fiscal consolidation is likely to take a back seat," said Nirmal Bang, a brokerage.
- Mumbai: eBay chief executive officer Devin Wenig said the US online marketplace will re-enter India amidst the governmentâs latest foreign direct investment (FDI) guidelines on ecommerce companies.âThere wonât be one or two parties that make up the entirety of the Indian ecommerce opportunity and we certainly intend to have a share of it,â Wenig said at an investors call on Wednesday.He was responding to a query on whether there is a new window for eBay in India after the new foreign direct investment policy. âThere are multiple opportunities; there are other parties that have approached us about potential collaboration. We will see how that goes. I think the Indian market is still in its early phases. There is plenty of growth left,â Wenig told analysts.
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