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This is the first Budget from Modi 3.0. Could it appear in a new avatar because normally the first Budget of a new government is about fixing the short term, mending the medium term, and kickstarting the long-term? What could be the playbook for this year's Budget?
Nilesh Shah: It has several kinds of implications and it is going to be probably the most important document in recent times because this Budget is probably going to unveil more like the vision for the next five years in terms of what direction India and the Indian economy take. It will surely have several measures that will not just sustain but also boost growth. We are an economy growing at 7- 8% and we need to sustain that growth rate and maybe higher for the next 5, 10, 15, 20 years. This Budget is going to be keenly watched from the medium to long-term perspective and will probably unveil several growth-boosting measures.
A general feeling in the market is that this year’s Budget could see a shift of stance from expenditure to rural and from boosting infra schemes that have been the driving factor of India's GDP, could tilt towards consumption and that could be because of politics, because of reality or could be the compulsive nature at play.
Nilesh Shah: I think there is going to be a lot of continuity in terms of both the intent and the policy measures. If we look at the government, especially over the last term and the previous term and even before that, over the last 5 to 10 years, the big focus has been on infrastructure and investment-led growth versus consumption-led growth clearly in terms of priority.
It is not that consumption-led growth has not been a focus area, but it has been infrastructure and investment-led growth which is the right thing to do and I believe that that will continue to be the focus. But having said that, it is possible that there will be some amount of focus on policy measures that can boost consumption but may not be in terms of direct measures but probably will be through indirect measures. For example, the welfare measure or the payouts for farmers could be increased from Rs 6,000 at present and maybe the coverage could be made more universal from a rural context.
I also think that from an urban context, from a middle-class perspective, the exemption limit on income tax could be hiked so that there is more disposable income in the hands of middle-class and urban households. I do not think the focus, the priority is going to change. I still believe this is going to be an infrastructure and investment-oriented Budget. Along with that, there would be some focus on social spending and focus to boost incomes of both rural and urban households.
Nilesh Shah: In the first place, clearly what the markets would surely not want is a hike in the tax rate; that is something which probably the market is not prepared for. There is, of course, talk about it, but I do not think the market is prepared for that. If it were to happen, it would surely impact the markets.
In terms of increasing the tenure, there may be a bit of a knee-jerk reaction, but I do not think that will have any kind of a lasting impact. That means if the definition of long-term is increased from one year to two years or three years, I am not sure if that will make any durable impact. If tax rates are hiked, I do not think the markets are going to take that positively, but yes, if the duration is increased, that is fine. The market will take it in its stride.
Do you expect any big bang indications in terms of where the focus could be, like in manufacturing, PLI? Do you expect any meaningful allocations that could indicate which way the government wants to spend and how the expenditure cycle is leaning?
Nilesh Shah: On the expenditure side, I believe that the big focus will continue to be infrastructure. I would not be surprised if the outlays on infrastructure are further enhanced, which would be a huge positive, number one.
Second, there will be measures to make India's manufacturing more competitive and that could include the PLI scheme, essentially an extension of the PLI scheme to many other sectors.
These are some of the areas that will continue to receive priority. It will continue to receive government focus. The priorities remain the same. The allocations may get increased sizably and significantly and that is going to be the big change.
As always, the market worry is about two or three numbers – fiscal deficit, tax assumption, and disinvestment target. From a hygiene standpoint, what is the importance of these standard numbers?
Nilesh Shah: The top priority is going to be the fiscal deficit. One has to give credit to this government in terms of its priority of fiscal discipline and the priority to ensure that the fiscal deficit starts to trend down despite essentially the challenges that we face like Covid. So, from that higher fiscal deficit which we enjoyed in the Covid year, it has come down and now it remains committed to the fiscal deficit gliding down. So, from a budget point of view, that is going to be the biggest statistic to watch out for and that is something the markets will look forward to and if essentially the path of fiscal consolidation continues to glide downwards, that is something which essentially could cheer the markets.
Historically, we have seen the importance of the budget getting diluted. It is almost like a one-day event and a couple of hundred points here or there on the Nifty. But being the first Budget of the new government, in terms of relative importance, could this Budget have a very significant impact in the near-term market direction? It could be a swing event.
Nilesh Shah: It can be a swing event and I believe that this budget is going to be extremely important. The first budget of any government's five-year term is the most important. So, to that extent, I believe this Budget is important. It is going to be important from a couple of perspectives. One is essentially the agenda and the vision for the next five years.
These are some of the measures that the market will continue to kind of look out for. So, this Budget to that extent is going to be extremely important because it is going unveil the vision for the next five years and will show if the government will continue to be on the path of stability with the focus on investment-led growth. The market this time is going to be focused on both these factors. The Budget probably will have a twofold objective and that is why this Budget is going to assume a lot more importance.
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(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)
Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.
Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price