We should not lose path of fiscal prudence: Nilesh Shah

By controlling fiscal deficit the government has ensured enough space for private investment and which is where 67785085 67784841 67784184 we have created a stable macroeconomic platform. Nilesh Shah, MD, Kotak AMC, tells ET Now.Edited excerpts:What exactly are markets are expecting in terms of the tone and the tonality of this year’s budget? The market definitely is pricing in a balanced budget. They will give some leeway for populism but not at the cost of fiscal prudence. Market is taking assurance from finance minister’s comment that government will not leave the path of fiscal prudence. They have given deficit number of 3.3%, lower GST collections, do indicate that there will be some amount of slippage and some amount of slippage could be there because of populist measures but at the end of the day it will be a marginal divergence not significant divergence. If there is a breach on the fiscal deficit, will that spook the markets? Frankly speaking, India has gained a lot by perusing the path of fiscal prudence in last couple of years. We were running fiscal deficit at 4.5%. We have brought it down to 3.3% and with that we have brought down inflation. We have got FIIs investment in our debt market and even if we are not part of debt index, FIIs have pumped in almost 60-70 billion dollar in our debt market. It shows their confidence. More importantly, by controlling fiscal deficit the government has ensured enough space for private investment and which is where we have created a stable macroeconomic platform. If we let go the path of fiscal prudence, then this hard fought battle of controlling inflation, giving room for private sector investment, giving confidence to global investors about stability of Indian macro all could come under doubt, all could come under pressure and which is why it is important that we do not lose path of fiscal prudence.There are expectations of sops or universal basic income being announced for farmers, how do you think the market will absorb this because this would surely have a fisc burden too?More important is this expenditure is funded. It is not that the Indian government does not have assets, they have lots of assets but those assets are not sweated or monetised appropriately so if you incur spending for some populist measure it is important to fund that through monetisation of assets owned by government of India. Many of those assets are not sweated properly, for example, when Hindustan Zinc was 100% owned by the government of India it was making one level of production and one level of profits, it multiplied significantly when it changed hands in the hands of private entrepreneurs. The price at which Hindustan Zinc was sold a majority today it is almost giving that kind of dividend to the government on a quarterly basis for the residual ownership in company. So if the government decides to spend money on populist measure and it is funded out of divestment of assets or monetisation of existing assets, markets will be kind to it. However, if the fiscal profligacy is funded by way of market borrowing certainly markets reaction will be adverse.

from Economic Times http://bit.ly/2GjlCUG