Budget achieves trinity of impossible: Nilesh Shah

Nilesh Shah, MD, Kotak AMC, says Budget 2024 is like Suryakumar Yadav’s catch in the last cricket T-20 World Cup. It has achieved the trinity of the impossible – the path of fiscal prudence, support for investment in infrastructure, and generating employment to boost consumption. I hope and pray that eventually, this catch helps us become Viksit Bharat.

The India story is centred around SIPs and mutual funds. There is cash and if the India appeal is centred around SIPs and not tips, one should not worry about it in time to move on. So, whatever changes have come on taxation, should that be ignored?
Nilesh Shah: So, don’t ignore it. You have to take that into account. People who are trading in F&O now will have to bear higher costs and hopefully, they will reduce their trading activity. But from an investor point of view, the fundamentals have improved with fiscal consolidation, with investment focus continuing and hopefully with better employment generation, this growth is likely to be sustained. So, the valuation impact on the market will be far more from the Budget rather than the diluting effect of increased taxation. So, overall, the India growth story continues and instead of tips, do SIPs.

I would like to draw your attention to the fiscal deficit number. Today, we are feeling happy that it is coming down from 5.1% to 4.9%. But could that come at the cost of perhaps a cut in a lot of expenditure, a lot of government-dominated schemes that have had a booster effect? Now we know where the peak is hitting in terms of public expenditure.
Nilesh Shah: My feeling is that revenues are underestimated in the Budget. The first quarter advanced tax collection is up about 25%. We are not factoring in that kind of corporate income tax appreciation. Second, there is a very limited number provided for divestment. This market provides a better opportunity. Between tax buoyancy, higher dividend income from PSU companies, and potential divestment numbers, we are likely to have a revenue surplus.

So, my feeling is that the government has resources and they want to send a message to investors that India is firmly on the path of fiscal prudence. We will probably become a primary surplus economy over the next couple of years, only one amongst the few major economies worldwide. It could lead to India’s credit rating upgrade. Overall, I do not think the government is controlling expenditure for fiscal prudence. It is the availability of resources which is resulting in the path of fiscal prudence.

In terms of a couple of news flows that came in, Mudra loans got enhanced. We are seeing credit guarantee schemes for MSMEs and that is going to be without collaterals. While it is a positive in terms of the consumption side or consumer point of view when you are looking at the banking side, we are seeing clear pressure coming in and a bit of a jitteriness. Is that something one should be worried about from that point of view?
Nilesh Shah: Microfinance institutions lend money without any collateral and sometimes on group guarantees or group commitments. By and large, at the bottom of the pyramid, we have seen an absence of Nirav Modis, Vijay Mallyas, and the Mehul Choksis of the world. So, my feeling is that the credit guarantee scheme introduced during COVID pressure has worked wonderfully well without providing any direct fiscal benefit.

The MSME sector was supported and it helped them come out of a Covid downturn without much trouble. This is now extended further. There was a time when 75- 80% of agriculture credit was with moneylenders and sahukars; that proportion has fallen to 23%. If we do a similar analysis for MSMEs, the numbers will be almost similar.

While we have ensured organised financing for MSMEs in agriculture, there is still scope for improvement. The credit guarantee scheme worked effectively and will do wonders and this credit guarantee is not coming free. The borrower has to pay a guarantee commission to the corporation. It can become self-fulfilling. I hope some of our credit guarantee corporations on agriculture, MSMEs, and housing become like Freddie Mac, Fannie Mae, Ginnie Mae of the US, which has ensured a house for every American.

Let’s have a cricket analogy take on the Budget.
Nilesh Shah: This budget is like India’s T20 World Cup campaign. We were winning all the matches up to the final. We became the fastest-growing major economy and then in the final, there was a little bit of pressure, but Suryakumar Yadav took a beautiful catch and made us the World Cup winner.

This Budget is like Suryakumar Yadav’s catch. It achieves the trinity of the impossible – the path of fiscal prudence, support for investment in infrastructure, and generating employment to boost consumption. A trinity of impossible between fiscal prudence, investment, and consumption boost is just like Suryakumar Yadav’s catch. I hope and pray, eventually, this catch helps us become Viksit Bharat.

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