Indian Economy Needs A Fiscal Boost To Get Demand Back, Says JM Financial
JM Financial’s Suhas Harinarayanan pitches for an expenditure-driven economic growth to be charted in Union Budget 2019.
Newton’s second law of motion—an object can accelerate only if an external force is exerted upon it—must be applied to revive demand in the Indian economy, according to JM Financial Ltd.’s Suhas Harinarayanan.
“You really need some form of a fiscal boost to get the aggregate demand back,” the head of institutional equity research at the company told BloombergQuint in an interview. “I don’t think an answer (to revive overall demand) is lying with the Indian corporates or households but probably with the Indian government.”
Harinarayanan pitched for expenditure-driven growth to be charted in Union Budget 2019. Capital expenditure as a percentage of revenue expenditure declined in February’s interim budget for the first time in five years, he said, adding that percentage must be maintained or even increased.
“What the government does typically is to spend for the first nine months and cut down the expenditure in the last three months to meet the target,” he said. “Our recommendation is to spend all the 12 months without cutting until the economy is back in shape.”
The government has kept fiscal deficit—difference between total revenue and expenditure—target for the ongoing fiscal unchanged at 3.4 percent from last year. In most cases, the government makes up for this gap through external borrowings.
Harinarayanan said a 3.5-3.6 percent fiscal deficit could be achieved using the Reserve Bank of India’s excess reserves or a better divestment programme and not printing more currency till 5 percent deficit is achieved.
What Mid Caps Indicate
The country’s growth tapering off could also be seen in the Nifty Midcap 100 Index, which is trading at a discount of 15 percent to the benchmark Nifty, Harinarayanan said.
This dip is due to discretionary, industrial and public-sector financial stocks that witnessed a cyclical slowdown, Harinarayanan said, adding these segments together have a 40 percent weight in the Nifty Midcap 100 Index compared with less than 20 percent in the Nifty index. “Clearly, economic growth is required to get that back on track.”
Watch the full show here: