Analyzing Union Budget 2024 Driven by India's Growth Story | Market Reactions & Sector Impacts
India's growth story will drive the Union Budget, says Geojit Financial's, Chief Investment Strategist, Dr. V K VIJAYAKUMAR. We will have to sustain growth to solve economic challenges. Announcements in various sectors will move the market in a certain way. Tune in to listen to how the stock market may react to Budget announcements.
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#Budget2024, #UnionBudget, #NirmalaSitharaman, #ModiSarkar3, #stockmarket, #Budgetsession, #UnionBudget24
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00:00Hello and welcome. We are all anxiously waiting for the upcoming budget on July 23rd. Today,
00:10we have with us Dr. V.K. Vijay Kumar, Chief Investment Strategist, Geojeit Financial Services
00:16with us. Hello, Dr. Vijay Kumar.
00:18Hello.
00:19Hi, thank you for being here. My first question and I think everybody's question is that,
00:26what is your overall expectations from the budget?
00:30Well, the overall expectation from the budget is that it will be a growth-oriented budget,
00:37a budget which is fiscally prudent and a budget which can provide some relief to the middle class
00:44in the form of income tax reliefs. Broadly, I would summarize this budget that is going to
00:52come on 23rd as a growth-oriented and fiscally prudent budget. How do I say that with conviction
01:01even before the budget is, we need growth to sustain in India. We know that during the last
01:08three years, India has been the fastest growing large economy in the world. This year also,
01:12India will be the fastest growing large economy and we have a large number of economic challenges
01:17facing us and to address those challenges, we have to sustain growth and this government also,
01:23if you look at the last 10 budgets of NDA government, NDA1 and NDA2, their focus was
01:30on economic growth and there is unlikely to be any compromise on growth. That is the first part.
01:37Secondly, it has to be fiscally prudent also. Fiscal consolidation is absolutely necessary
01:44and fortunately for the finance minister this year, they are sitting on an unexpected
01:50bonanza of more than 1 lakh crores which they got as the dividend from the RBI. The interim budget
01:58had factored in only less than 1 lakh crores. What they actually got was more than 2 lakh crores.
02:05Therefore, an additional more than 1 lakh crores have come from the RBI as a special transfer,
02:12special dividend. So, fiscally speaking, the government is sitting pretty from the financial
02:19perspective and therefore, the finance minister is in a position to continue on the fiscal
02:26consolidation path. The fiscal deficit for FY25, yes, FY25 as per the interim budget,
02:37as per the vote on account was 5.1 percentage. The finance minister can easily maintain it all
02:44at 5.1 percentage. Perhaps she might even reduce it a little bit because there is fiscal room for
02:51that. And this is precisely the reason why the government is also in a position to provide
02:57some relief to the middle class in the form of income tax relief because this present
03:03new income tax regime, new regime without exemption was introduced in the year 2020.
03:11So, it is four years now. So, even if you do the inflation indexation, the exemption limit has to
03:19go up and the government is in a position to do that. So, that is the broad expectations from the
03:23budget. Right. You very rightly said that India has been the fastest growing economy and probably
03:31will be. Now, IMF last week also had raised India's GDP forecast to 7% from 6.8%. And I do
03:40have a question on stock market. But before that, I wanted to ask you that what are some of the
03:45challenges? Because you said that this budget will be driven by growth, which is fantastic. 7%
03:52growth is very good. What do you think are some of the challenges that Indian economy could face
03:59in the coming years? Yes, we can look at the challenges from two angles. One is the macro
04:08challenges. When we talk about growth, it is important that this growth has to be growth with
04:15stability, growth with financial stability. So, financial stability is important. If you have
04:22high growth, but suddenly the financial stability completely disappears, then you have a large
04:28number of problems. That is why the government always focuses on growth with stability.
04:34One macro challenge that we have is the high debt-to-GDP. Our debt-to-GDP, the Centre and
04:41States put together is 81%. The developed countries have more than 100%, but they have
04:47AAA credit ratings and can afford to have 100, 120, even 200% debt-to-GDP ratio like in Japan.
04:57But developing countries, emerging economies like India cannot afford to have a high
05:04debt-to-GDP. So, that is why we have to reduce our debt, not in absolute terms, the GDP increases,
05:11the debt-to-GDP ratio will come down. So, that is the macro challenge, which we are addressing. It
05:17is not an insurmountable challenge, but that is a challenge. Then going to the medium to long term,
05:23we have challenges on the employment front. We have the challenges on poverty reduction.
05:29But then these are problems which cannot be solved overnight. You need sustained growth for that. If
05:35the Indian economy achieves 7% plus sustained GDP growth over the next several years, then the
05:42government can implement large number of redistributive programs. The government can
05:47continue the free food grain distribution to 80 crore people so that the hunger is no longer a
05:54problem. Poverty will continue to be a problem because it will decline only slowly, but we can
05:59address the problems of hunger. We can focus more on the Pradhan Mantri Awas Yojana, which is a top
06:09priority of the government. At this stage of India's economic growth and development, it is
06:13very important that all people should have a roof over their head. And therefore, such programs
06:20should have a top priority. And that is why growth with stability is important. And only growth can
06:27give the government adequate resources. And only with the resources, the government can address
06:32these challenges. Rightly said. Now, you spoke about Japan's economy. I just want to understand
06:40what your thoughts are about, say, inflation, because more or less probably inflation is still
06:46controlled in India compared to if you want to talk about the US or Europe, that they are on
06:53the verge of cutting rates, but US just can't. What is your expectations? When will the RBI
07:03move towards a rate cut? Or do you see persistently higher inflation due to monsoon?
07:10Well, our food inflation is a concern. And food inflation is something which can't be
07:19brought down through monetary policy. If the RBI or the Monetary Policy Committee raises the
07:26repo rate, the food inflation will not come down. Food prices will depend more on the monsoons,
07:32the El Nino phenomenon, which we had last year impacted agricultural production. Therefore,
07:39even now I say, even though our latest CPI inflation print is at 5.08 percentage,
07:48it is above RBI's target of 4 percentage, but it still is within the tolerance band of 6
07:55percentage. Yes, the RBI will not be unduly alarmed by that. And this year, we are already
08:02having very good monsoons. And therefore, the food protection will be good. So, we can expect a
08:08decline in vegetable prices and food prices also in the next couple of months. The RBI's
08:16projection for food, I mean, RBI projection for CPI inflation is 4.5 percentage for financial year
08:2425. That is achievable. But then it is important to understand that the budget can't do anything
08:30about inflation because inflation control is in the realm of the central bank one. And secondly,
08:39it is in the realm of the GST council. The GST council can take a call on cutting the tax rates
08:45on certain consumptions of products of mass consumption. The finance minister at the centre
08:53or the finance minister at the state level, finance ministers at the state level can't do
08:57anything about that. Therefore, the budget is not the instrument to address inflation.
09:02Right, right. Very nicely said. Now, the most important, you know, probably aspect of
09:09this show is where is the financial market headed? You know, what will be the reaction
09:14during the budget or post budget? What is your view on that?
09:19Well, it would be difficult to predict that. That will depend on what the budget proposals are. It
09:24depends on budget proposals. As I said at the beginning, this budget is likely to be very
09:30positive. It is unlikely to have any negative impact on the stock market. But if there are
09:35some budget proposals, for instance, if the finance minister tweaks the long term capital
09:43against TAGS, well, it can have an impact on the market. But all the impact of the budget
09:50proposals on the market will be short lived. But then to answer to your specific question on
09:56what will be the impact on the market, it depends on the budget proposals themselves,
10:01particularly budget proposals regarding long term capital gains tax. We do not know what
10:07the finance minister is going to do. Of course, of course. So, Dr. Vijay Kumar,
10:11one last quick question. Do you think, I think you do, but I still want to ask you,
10:18do you think that this budget is going to be a populist budget?
10:22It is unlikely to be populist because populism is negative. It can be popular without being
10:29populist. The finance minister should try to be, try to bring about a budget which is popular,
10:38but not populist because populism means bad economics. And we know bad economics can be
10:48good politics, but good politics can be, populist programs can be very bad economics. And that can
10:55impact economic growth, that can impact the economy, that can impact the ruling party,
11:01everyone in the long run. Therefore, the finance minister is unlikely to do,
11:07unlikely to do that. Particularly, there was an option to bring about a populist budget
11:14with a lot of giveaways in the interim budget presented by the finance minister.
11:18But they did not do that. That was before the elections. You should be populist before the
11:23elections. Now, of course, we have elections coming up in some key states like Maharashtra.
11:29Therefore, there can be some attempts at placating the masses. But then a populist budget is not the
11:39right kind of budget that we expect right now. And also, particularly from the market perspective,
11:45all the market participants, particularly investors, are asking for now is,
11:50please do not tweak the long term capital gains tax. Because there are rumours that
11:56the finance minister may raise the long term capital gains tax from the present 10 percentage
12:02to 20 percentage, or she might make some changes in the tenure of the long term capital gains tax.
12:10Right now, it is one year and beyond one year is long term capital gains tax of 10 percentage,
12:19and up to 1 lakh, it is completely accepted. If there is some very serious tweaking on that,
12:25either by raising the long term capital gains tax by 20 percentage, that is the most important
12:29concern, then that will be impacting the market. That is the only concern which investors have.
12:35Investors are not asking for anything now. Because we can, logically investors can say
12:41that when the long term capital gains tax was abolished in 2004, the finance minister said,
12:49we have introduced the securities transaction tax, STT. And the STT is in the place of long
12:55term capital gains tax. So, when the long term capital gains tax was reintroduced,
13:00the STT should have been abolished, but that was not done. Therefore, it is legitimate to ask for
13:06abolition of securities transaction tax. But the investors are not asking for that because
13:13investors are happy because the market is very bullish. And therefore, our hope is that the
13:19government, the finance minister will not be tweaking the long term capital gains tax,
13:25thereby impacting the market. Otherwise, we expect this budget to be very positive because there is
13:30fiscal room for a popular budget and not a populist budget.
13:36Right. Very, very, very informative, Dr. Vijay Kumar. I want to personally thank you for
13:43joining the show. That was Dr. V.K. Vijay Kumar, Chief Investment Strategist,
13:49GOG Financial. Keep watching One India. Thank you.