Can India achieve the government’s target of achieving $10 trillion GDP by 2030? Given that we are yet to hit $4 trillion, only $8 trillion is plausible by 2030, says Nilesh Shah, MD, Kotak AMC, in a post-Budget interaction with Mint. He believes finance minister Nirmala Sitharaman achieved the trinity of impossible of fiscal consolidation, investment and job creation. It should lead to the country’s credit upgrade, he says. Shah adds that hiking the security transaction tax (STT) on futures and options (F&Os) is a step in the right direction. Edited excerpts:
Does Budget 2024 pave the way for India to become a $10 trillion economy by 2030?
The government’s focus on fiscal consolidation was one of the good things about the Budget. India is among the few countries in the world whose primary deficit (fiscal deficit- interest payment) is 1.5%. The government is committed to bringing it down to 0.5%-0% by 2028. What it means is the government will be spending within its means and it will not crowd out private borrowers. This should result in credit rating upgrade of India, paving the way for a significant reduction in the cost of capital for private businesses. Entrepreneurs will have enough capital to make investments to run their businesses.
On the capital expenditure front, the government is focussed on not just road and railways but also power. India may face power shortage over the next two year because power plants are running at maximum utilisation. Power demand is growing in double digits while supply in a single digit. We have no option but to invest in creating more capacity. Finally we are investing in nuclear power, which is great.
View Full Image
Moreover, the focus is back on employment generation. Apart from skill-development schemes, incentives are being given for recruitment. It the country can create jobs, the growth will sustain.
That said, Budget did achieve an impossible trinity of fiscal prudence, appropriate funds for investments, and employment generation. It surely lays foundation for India’s economic growth. But can it help us change the orbit to achieve $10 trillion by 2030? That looks unlikely. $8 trillion is still a possibility.
What is your take on the government hiking STT on F&Os?
When we talk about F&O volumes, we must consider that it is a weekly settlement for us and quarterly for global countries. It means we need to divide our base by 52 and that of others by 4 to arrive at a comparable figure. We also need to note the non-level-playing field between local and global traders/speculators. For us, it is considered business income and most of us pay 39% tax on it, whereas it is capital gains for global investors. Thanks to double tax avoidance treaties, they pay zero tax on it. This needs to get addressed.
The hike in STT on F&Os is a step in the right direction. In India, we have two sets of players. One, with better computing power, better connectivity through co-location and better data analytics through algorithms. They are called high-frequency traders (or companies) who are local and global both. The other set, retail investors, play on guts. No price for guessing who makes money and who loses it. By hiking STT, the profit pool of HFTs will go down, which in turn will reduce their activity. This will automatically reduce the loss pool of retail traders.
Also Read | Retail investors and the draw of options trading, and why regulators are worried
Where does India stand on a global forum? Can we beat China on MSCI indices?
Thanks to the finance ministry, exchanges and the market regulator, India has been quite proactive in managing MSCI index. China’s weightage was around 30% when we were at 8% in 2018. We brought it to the attention of the finance ministry, exchanges and the regulator. We finally increased sectoral limits and engaged with the MSCI global team. We have finally reached 18%.
There are two developments to track. One, HDFC Bank was included in the MSCI index by making a special exception. The FPI holding in the company fell in the June quarter. Given the required FPI ownership of 75%, It is highly likely that the stock’s weightage will double (3.8% to 7.2%-7.5%) in the September review. Second, we are working with other investors to upgrade South Korea as the developed market. If that happens, their 11% weight will get distributed among others, taking India to 20%. By increasing our weightage, we are not only pulling passive money but also forcing active investors to become long-lived in India.
What is your take on inverse ETFs, which Sebi proposed in a consultation paper earlier this month?
Inverse ETFs will move in the opposite direction of where the market will be headed. Why will anyone launch such ETFs in a market like India? They could be some arguments to launch it. Do we need such an ETF in India? I say yes. Do I have mindset to run it? My answer is no.
What is one change that you would want to bring about in the Indian economy?
One area the government must focus on is bringing gold to the main economy. Our start-ups are being funded by foreigners. Why? Even though we have enough money in our country, it is allocated in Tijori. Our net gold imports are more than FPI and FII receipts. We should put all our might into putting that savings out so that Indians don’t have to raise money from foreigners.
Also Read: F&O, intraday and delivery trading: How these are reported in ITR
