Nilesh Shah, Founder -; CEO, Envision Capital

30 Jan 2022 , 06:55 AM

In conversation with Sheetal Agarwal, AVP- Content and Communication at IIFL, Nilesh Shah, Founder & CEO, Envision Capital talks about his expectations from the budget and what measures could provide a real boost to the economy as well as the markets.

What are markets expecting from this budget?

The big focus area this year should be on growth. We saw that in last year’s budget which was a growth oriented budget, where the government took several bold initiatives. I believe that this budget would continue to be an extension of last year’s budget. Clearly, the expectations and estimates of India’s GDP growth are running reasonably high. Recently, IMF unveiled a forecast where it expects India to grow at 9% next financial year. The budget should essentially unveil as many policy measures as it can to ensure that India does achieve that 9% growth. Government should do all it can to ensure that we achieve sustained, stable high growth rate. I believe the budget will try to address those and unveil a lot of measures which will further boost India’s growth.

Which sectors or themes should the budget focus on to meet these expectations?

I believe the three most powerful themes are around India’s demographics, digitalization and decarbonization. The government is committed towards these themes and the budget essentially will revolve around these themes.
Demographics is all about higher job creation which can be done by boosting India’s manufacturing sector (textile, automobile, auto components, etc.) and its exports. Manufacturing backed up by continuous focus on infrastructure and exports are the most optimal ways to boost the job creation program in our country.

Along with that, there should be a huge focus on social sectors especially health and education. How do we provide universal access to quality health and education services to a larger pool of the population? This question needs to be answered. India needs to have high quality resources to drive high economic growth over the long term. Hence, budget should focus on these two sectors.

Next big area is decarbonization and we have seen the prime minister commit very recently to India moving towards a carbon neutral scenario. I think whatever boost it can provide to renewables, EVs, etc. should be provided.

If India wants every single citizen to be part of its mainstream it has now become amply evident that digitalization is the only way through which every individual of our country can come into the mainstream. Therefore, how do we expand our internet infrastructure, how do we make data more affordable, how do we rollout 5G in a quickest possible manner and how do we essentially ensure that every citizen of the country has an affordable smart phone. Budget measures should focus on ensuring a faster journey towards 100% digitalization.

Several sectors have been the worst hit by the pandemic. Do you expect any measures that will help them revive and boost their growth?

It might be very difficult for the government to unveil measures for travel and hospitality. Because these sectors will do better when there is full confidence in every individual to travel and go on vacation with their family. That will be a function of whether we have more waves of the pandemic in the future or not. And how fully vaccinated we as a nation become. These two variables will be the driving force for these sectors. Some relief can be given through measures such as extension of moratorium period on loans taken by travel and tourism companies, offering concessional rate of interest; but these can be touched upon outside the budget.

What can the budget do in terms of direct and indirect taxes?

The budget has become a lot less relevant for indirect taxes given essentially given the fact that we now have a GST mechanism in place. The GST council takes a lot of these policy decisions. Maybe there could be a statement of intent saying that sectors such as petroleum, energy which are currently outside the ambit of GST would be included in GST over a period of time. This decision will be based on the consensus view and the final decision of the GST council.

Any expectations in terms of specific, market-related initiatives?

A few things which I think would be good for further boosting India’s investment environment. A lot of the startups have been asking to be brought on par with publicly listed entities in terms of tax treatment, especially taxation of long term capital gains (LTCG). There is an LTCG of 10% on publicly listed companies. Many years ago we had zero tax. I think if the period of LTCG is extended and the tax rate is brought down further that would be a big boost to equity markets and to the overall investment environment. Today, dividends are included in income of the recipient and attract a marginal tax rate. I think we can have a mechanism of differential tax rates in the hands of the recipients and maybe the tax rate can be taken as TDS so that the dividends received by shareholders and investors is exempt in their hands. These are some of the measures which I think will not cost the exchequers significantly but will go a long way in further boosting India’s investment environment. Keep in mind that not even 10% of India’s population has exposure to equity markets or to mutual funds. These numbers are much higher for other economies.

What are the initiatives which could drive a sharp reaction by the markets on either side?

Last year, the big surprise element was the announcement of privatization of two state owned banks. That was considered to be a major policy shift and was hugely welcomed by the markets. I am not quite sure if that number is increased from 2 banks will that act as a booster for the markets. But yes, some of the tax related measures which I mentioned earlier such as doing away with LTCG, making dividends tax free in the hands of the recipients can act as booster shots for the markets. In terms of the negatives, we have been hearing about some kind of a COVID tax being introduced or an inheritance tax or a wealth tax being introduced. If any such tax is introduced, that would be a major negative for the markets.