Is the market right in worrying about whether policy continuity is here to stay or not, whoever forms the government, whoever forms the cabinet?
I would say that policy continuity is guaranteed. The thing that is difficult always is making a U-turn or making a sharp left or sharp right. But merely continuing on the same path is not so difficult. So, I said BJP manifesto basically promised continuity. It did not have any fancy new schemes. It basically said we have done a fantastic job. All these things put together they have given you 8.2% growth. We have done a great job and we are going to continue doing more of the same. I mean, there can be more additional sectors or there can be slightly larger coverage of this or that scaling up, but the direction is going to be the same. And I would say managing the coalition again becomes much easier if you stick to continuity. If you want to have sudden changes of policy, various people can have objections because any sudden change of policy creates losers and politicians hate to have the losers, even if there are going to be winners later on.
So, I would say continuity was there in the manifesto. Continuity will suit the coalition partners. For this reason, I would expect whatever they have been doing to continue. What does that mean? It means the government will continue to lead with capex. Things like PLI will continue. They will continue to have this focus on manufacturing and in particular, I think they are extremely keen on going into the semiconductor component industry and they are I think very keen on going into green hydrogen where I think they perceive a chance of India actually becoming perhaps number one. Adani, Ambani and some smaller players are going into that in a big way and I would expect that to be part of that big attempt in the years ahead. Fiscal deficit, there was a glide path.
Sitharaman had specified. I think they will continue to go down on that. Actually, to go down from 5.8 to 5.1 and 4.5 is quite a squeeze in two years. Luckily for them, there has been a huge surge in indirect tax payments in the last two quarters, one reason why the GDP has been higher than GVA. So, when you start off with that kind of buoyancy to carry it forward in this current year, it seems to me quite feasible.
So, I think they will have enough tax revenue both to do capex and to bring down the fiscal deficit and maybe to do something about rural distress.
I mean, rural distress is seen as something that has perhaps cost them most. Mr Modi does not believe in freebies. PM Kisan has been kept constant at 6000 despite inflation eroding it.
Will they increase PM Kisan or bring in some similar thing, Rs 2000 per woman household, for instance, the kind of thing that has happened in Karnataka? Yes, there can be some new things. I think there will be space for all of these given the amount of revenue that has been pouring in. So, I would say that the markets will settle down. India’s real problem is not that there is going to be a sharp change in policy. It rather, Indian valuations are so high, there has been this disruption because of the fall in the expected number of seats.
But when things settle down, there is this saying, jo jeeta wohi Sikandar. The bottom line is that Mr Modi is back in power and no sign that he is going to be unstable.
Every sign that he is going to be there for five years and giving himself a chance perhaps to win once again in 2029. So, I would say, yes, the BJP has fallen very far short of expectations. On the other hand, he is very much there.
He is very much in the saddle and the INDIA bloc is still a very long way from trying to beat the NDA. So, I would say the market should be okay. They will settle down. And meanwhile, the valuations are going to be kept high by this enormous stream of 20,000 crore in SIPs month after month, I think that is one of the things that foreign portfolio investors have been talking about.
They can get far-far better bargains in Hong Kong, in China and of course if they have the stomach for it no place like Russia I would say. Those are places where valuations are really cheap.
But to the point that you were making about rural distress and yes, we all know that it has just been a very top-ended kind of recovery that the economy has seen post COVID. The other fear in the market is that come the budget, it will have a very populist kind of flavour to it and that is going to compress multiples perhaps. Is that a fair assumption?
No, I do not think Mr Modi is a populist prime minister. In fact, he will claim that he has been unlucky that the election year was also an El Nino year and therefore, there has been the sharp fall in production of various kinds of items. Overall agricultural growth has been 1.4% against more than 4% in the previous years.
So, because of this, I think there has been the distress. There was the double thing that the government got very worried about a sharp rise in the price of onions and therefore slapped a ban on onion exports.
The result was that in the entire onion belt of Maharashtra, prices crashed, and those areas have voted against Mr Modi. I would say that probably Mr Modi’s best bet is that this year we are supposed to have a normal monsoon. La Nina is coming back to replace El Niño, and if we get buoyancy on the agricultural side over and above the buoyancy he is getting in his indirect tax revenue, I think he can look forward to a pretty good current fiscal year and I think the budget will operate on those optimistic assumptions.