Smart macro and fiscal policies yielded massive capital gains for investors, says CEA Nageswaran 

The astute macroeconomic and fiscal policies adopted by the Centre over the last five years have played a key role in rewarding investors with accrual of huge capital gains to them, Anantha Nageswaran, Chief Economic Advisor, said on Tuesday.

The CEA was speaking at the businessline’s post-Budget event ‘Decoding the Budget 2024-25’ in the Capital on Tuesday. The event was powered by Nabard in association with FICCI. LIC and GIC Re were associate sponsors of the event.

The CEA said that criticism of the capital gains tax regime changes has to be in the context of the fact that these capital gains were yielded by the Centre’s macroeconomic policies.

Critics of tax changes on capital gains front in the recent Budget would do well to understand this before coming to conclusions, Nageswaran said. “So, when we criticise the government of the day for certain tax policy changes, we also need to acknowledge the fact that it is government’s pursuit of such prudent fiscal and macro policies that in the first place paved the way for capital gains to arise,” Nageswaran added. 

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“Macro policies have played a big role in generating capital gains. Before we take to social media or outfits to criticise policy changes on an isolated basis, it is important to take into picture what the entire macroeconomic policies have delivered in last 5-10 years in both absolute terms and in context of what is happening around the world”.

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Structural reforms

Nageswaran highlighted structural reforms undertaken since 2014 including GST, IBC, RERA and between 2019-24 in terms of investment in public infrastructure, emphasis on digital public infrastructure and ensuring vaccination of people, pursuit of fiscal consolidation from 9.2 per cent deficit to 4.9 per cent and coming closer to 4.5 per cent target have all created an atmosphere of macro stability and policy predictability. 

He said conservatism in terms of GDP growth assumptions, conservatism in terms of fiscal deficits and ensuring quality of fiscal expenditure between revenue and capital (with capex getting more preference) have convinced investors that India can be trusted as a place of macro-prudential stability. 

Nageswaran highlighted that both domestic and overseas investors have in last 10 years, more specifically post-Covid, been rewarded with good returns on their investments. 

To support his point, the Chief Economic Advisor reeled out data on dollar returns recorded by Morgan Stanley Capital International (MSCI) index (important benchmark for portfolio investors) pertaining to India. The MSCI-IMI India index has given annualised return in US dollars over last three years at 14.7 per cent. Over the last five years, the annualised return is 14.9 per cent and last ten years it is 10.2 per cent. In comparison, the entire emerging market universe annualised return (-) 4.1 per cent, five years it was 3.9 per cent and 10 years return was 3.1 per cent for emerging markets. 

“By and large, India has rewarded investors whether they are domestic or overseas. The macroeconomic policies followed during Covid and post-Covid have contributed to the capital gains to arise,” he added.

Nageswaran also asserted that long-term capital gains tax rationalisation was intended to make the whole system a simpler one and not intended to short-change certain investors.

LOW HANGING FRUIT

Noting that global uncertainty due to geo political tensions may persist for some more time, Nageswaran said that India would do well to vigorously pursue the “low hanging fruit” of domestic growth. 

For this, there is a need for big deregulation and delicensing at the sub national government level such as States and local bodies to help unshackle the entrepreneurial spirit of Indian citizenry, he added.

He was responding to a question from Poornima Joshi, Chief of Bureau at businessline, about whether the current global uncertainty and rising protectionism could lead to increased de-globalisation of the global economy.

Nageswaran noted that he does not see India’s exports contributing to economic growth in a big way this fiscal. If that were to happen it would indeed be a bonus for the country, he added.

GDP GROWTH FORECAST 

Nageswaran maintained that India achieving 7 per cent growth in 2024-25 is “feasible”, but at the margin there are risks. It is those risks including global uncertainty, monsoon situation and elevated global financial markets that prompted the Economic Survey to peg the growth forecast for 2024-25 conservatively at 6.5-7 per cent.

“I am not going to complain if 6.5-7 per cent turns out to be a remarkable underestimation,” he said. Infact, the 2023 Economic Survey last year had projected India GDP growth at 6.5 per cent for 2023-24, but the actual turned out to be 8.2 per cent, he pointed out.