00:00Nilesh Shah, MD of Kotak Mahindra AMC, also with us, and Sunil Sanghania, founder of Abacus
00:07AMC.
00:08So we've got a power-packed panel with all the voices in at this point.
00:12Let's start with the quick first takes.
00:15Nilesh Shah, you know, I'm not going to do the standard rating of the budget, but this
00:19one at least had a surprise in terms of capital gains tax.
00:24Everyone was in the will-she, won't-she, will-they, won't-they kind of a situation.
00:28Are you surprised negatively?
00:30No, I'm not negatively surprised, I'm just disappointed.
00:36STT was levied in place of capital gains.
00:40Now STT and capital both continue since 2018.
00:46Now capital gains tax is revised upwards.
00:49But there is a non-level playing field between foreigners and locals.
00:54If FPI invest in Indian derivatives, they make capital gain.
01:00If UNI invest in Indian derivatives or trade in Indian derivatives, it is business income.
01:08The foreigners doing trading in our derivatives are earning tax-free income, whereas we pay
01:15tax as per applicable slab rates.
01:19I think we should create a level playing field between foreign and local participants
01:25in the market so that there is equal distribution of taxation.
01:30Got it, okay, okay, and, and, okay, so, okay, that's the first take.
01:40Let's get, let me get the first take from Prashant Khemka as well, then I will follow
01:43up for Mr. Nilesh Shah.
01:46How, how would, what does this mean for equity markets by and large?
01:51There is also this angel tax, which is a very interesting that we just come in, but what's
01:54your first take on the budget from a market's perspective, both from a taxation as well
01:59as this adherence to the fiscal deficit are actually beating what they'd laid out?
02:03So, thank you, Neeraj.
02:06So first of all, you know, in almost all respects, other than capital gains tax, the budget to
02:12me seems like a continuation of prior budgets.
02:15The prior budgets were all received well by the investment community, and we have to keep
02:22in perspective that the, you know, impact of budgets in the normal course of events
02:28is, is, you know, with some rare exceptions, is fairly short-lived on the markets unless
02:36there are some very tectonic shifts in the way the economy is expected to grow going
02:43forward.
02:44So, in some sense, there's a continuity budget.
02:46This one negative on capital gains tax, I think, as Nilesh also mentioned, the revenues
02:53could have been generated in other ways as well.
02:56Just besides, first of all, it's a two and a half percent increase.
02:59Let's forget for a minute the short-term gains tax, which you can't really forget, but the
03:03long-term gains tax has been increased by two and a half percent.
03:06That means if you are going to expect 10 to 11 percent over time, I think reasonable to
03:11expect 10 percent return from the market, then it has shaved it off by 25 basis points.
03:17It's material, yeah, because there's no indexation benefit.
03:21So your real return has gone down more than two and a half.
03:25It's gone down probably by five percent.
03:28It also opens up a Pandora's box in a sense.
03:32We had a certain stable tax regime on investors for the last several years, yeah, 10 percent
03:40on capital, long-term, 15 percent short-term.
03:43The increase in this budget also raises the risk in investors' mind legitimately so that
03:49we can have frequent changes.
03:52And when I say changes, usually with things related to taxes, they only go in one direction.
03:57So could this imply future tax hikes as well?
04:02Actually, I think in my experience of having invested in developed and EM markets, the
04:12taxes on investments in equity markets in India are towards the high end, especially
04:18the variety of taxes, all taken together.
04:20I'm not saying just look in isolation, long-term gains tax or short-term gains tax and so on,
04:26including the dividend tax and the buyback tax and the STD and all those.
04:31So at a certain point, there'll be a straw on the camel's back, a theory would be applicable.
04:37I don't think this two and a half percent increase is that straw, but increases the
04:41risk that down the line you'll have further uplift in this tax rates.
04:47But that is the primary concern with the budget.
04:51Otherwise, I think most of the budget, particularly hopefully the fine print would have to be
04:55looked at.
04:56Nilesh, I was just mentioning a short while ago on the media, which is what I'm frantically
05:01searching for in the fine print that certain laws have been amended in the direction of
05:06ease of doing business, which would allow fund managers like myself sitting outside
05:10India to come back to India and live a normal life in India.
05:14I've yet to see that print, my team is looking for it as well.
05:18But if such things are indeed included in the fine print, then ease of doing business
05:23is what I usually always look for from a budget rather than this tax tinkering.
05:28The budget is an opportunity, every budget to me is an opportunity to improve ease of
05:32doing business, because all said and done, we are last published ranked 63rd on ease
05:39of doing business.
05:40We want to be number one to become a developed nation by 40, we can't become a developed
05:44nation by being 63rd nation on ease of doing business.
05:47That's true.
05:48So that fine print, I'm very much eager to look into as it becomes available.
05:53Prashant, I can almost feel the pain.
05:56But I think that's the kind of voice that Neeraj bhai gave as well and you rightly referred
06:01to it.
06:02So Neeraj bhai, I think Prashant makes this important point that does this open up the,
06:07in a sense a bit of a runway that people will not have clarity now about whether this is
06:13the last of the tax changes and the max tax that we have, which is 20% on short term,
06:19or could it be more?
06:22At least this year, Neeraj bhai, the details are out.
06:27And I'm sincerely hoping that the safe harbour clause which Prashant bhai referred to, and
06:34which I had the pleasure of handing over to the Honourable Finance Minister in my pre-budget
06:38consultation, really works out.
06:42And next time, both me and Prashant bhai are in your studio in person, and not I am in
06:48local office and Prashant bhai in global office.
06:51And that's the important point.
06:52If India has to develop as a regional financial centre, we have to bring Prashant bhai in
06:57India, not keep him outside, by changing our rules and facilitating it.
07:03And this budget is a step in the right direction.
07:06There are changes being proposed to improve ease of doing business, ease of doing investments.
07:12And we should keep on taking feedback so that we ultimately achieve our objective of bringing
07:18talent into India.
07:21Neeraj bhai, you know, so a couple of things.
07:25I want to ask you about employment etc.
07:27But I just want to play devil's advocate on the capital gains tax changes, of course,
07:32the impact for real estate and gold still has to be understood because indexation goes
07:36out of it.
07:37But on equities, if the counter argument would have been that look at the kind of gains made
07:44in equities by everyone.
07:48Why should the government not take a little bit more from you?
07:51Every other kind of income is also being taxed.
07:54What would you say to that?
07:58So one, why do we give tax incentive?
08:00We give like vitamins tax incentives for correct certain deficiency.
08:07Where is the challenge today?
08:09Is government doing its job of building infrastructure?
08:12Answer is yes.
08:15Is private investment coming through as much as they wanted?
08:18Even yesterday's economic survey mentioned that now the ball is in private sector's court
08:23to take it forward.
08:25How will private sector invest if there is no capital formation?
08:29The corporate India makes 16 lakh crore of profit, and they give probably 40% of that
08:36by way of dividend.
08:39Now is there an investment happening?
08:42Answer is it's happening on a limited manner, which is why tax incentives are needed so
08:47that capital market can provide capital to our entrepreneurs, and they can go and then
08:53invest.
08:54Today, 9 lakh crore rupees in last three years between FY21 to 23 has gone into currency
09:01notes.
09:02Does people make money on currency note?
09:04Answer is no.
09:05We need to give them incentives so that currency note instead of lying in the jury comes back
09:10into the economy.
09:13We have imported on an average 700 tons of gold in 22 years of this century, our net
09:19import of gold, including gold smuggling and people wearing jewelry and passing through
09:25green channel is about $500 billion more than our foreign direct investment, more than our
09:31foreign portfolio investment.
09:33Where is that gold lying?
09:35It's lying in the jury.
09:36Shouldn't we give tax incentives so that that gold comes out of the jury and stays in formal
09:41economy?
09:42Tax incentives are needed to correct the deficiency on low capital formation.
09:47Okay, just, you know, that's a that's a good point there.
09:52So perhaps we could have been a little softer with long term capital gains tax there.
09:58That's the resounding voice coming through.
10:00I just want to get your view on the employment push.
10:06And that really, I would say, if I had to predict what tomorrow's headlines will be
10:10in all the newspapers, among other things, after capital gains tax would be the big push
10:15for employment.
10:17I want to understand from your point of view, do you think that there are some out of the
10:21box ideas which could really change things?
10:25Certainly.
10:26But before I go to that, I do want to, you know, thank Vilesh Bhai for really batting
10:32for the industry on this, regardless of what is there in the fine print, batting for the
10:37industry for this change, which would really spawn a, and it's tied to the employment creation
10:44as well.
10:45It would spawn a birth of a global hub in India.
10:50Just like for IT services, India is a global hub.
10:55With a small change in the policy, the right change in the policy that Vilesh Bhai was
11:02referring to, the safe power cross, it would lead to India becoming the global hub, just
11:09like it is in IT services, becoming a global hub for asset management as well.
11:14And think of the employment creation that that would lead to.
11:20So the employment creation initiatives are very positive in the budget, but what structural
11:28measures that can, besides the incentives, other structural measures which come along
11:34with ease of doing business, not just related to the safe power clause, but across board.
11:40The finance ministers talked about reviewing the tax code within the next six months, by
11:45the time of the next budget, simplification of tax code, ease of doing, leads to greater
11:49ease of doing business, that itself should spawn and have a far deeper and much larger
11:56impact on job creation.
11:59Then what is also welcome, very welcome, in the interim, the higher allocation to job
12:06creation initiatives, be it in skill development, upgradation of skills, and incentives to manufacturing
12:12sector for first-time employees, and the incentives in form of contribution to the pension plans.
12:21All those are very welcome moves, but you have to think in terms of combination of these
12:27fiscal incentives, which may work very well in the short to interim time periods, combine
12:34that with the structural job creation possibilities that would come with greater and greater ease
12:40of doing business.
12:41Absolutely.
12:42So overall, a good budget, no one likes to pay more taxes, so you are seeing that also
12:49play out, not just in the markets, but from some of the conversations we are having.
12:52Having said that, markets have recovered from its worst levels of the day.
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