Capital gains tax changes may impact investment behaviour: Rashesh Shah

Buyback and tax-free dividend had a gap and an equalisation was needed. Volumes in F&O trading had gone up rapidly and, in a way, the increase in STT on F&O will protect investor interest, he said

Foreign investors and India Inc. often express concerns about regulatory consistency, infrastructure quality, and ease of doing business in India, said RASHESH SHAH, chairman, Edelweiss Group in an email interview with Puneet Wadhwa. Budget 2024 maintained a balance between populism and pragmatic economic planning, he said. Edited excerpts:

Has the budget adequately addressed the issues of employment generation, growth, consumption, and wealth creation?

Budget 2024 robustly addresses employment generation, growth, consumption, and wealth creation. We feel it prioritises long-term economic stability and inclusive development, addressing key areas like employment, manufacturing and infrastructure.

Do you think the government's focus will shift more towards populism as the political parties gear up for state elections in the next few months?

 

As state elections approach, there may be populist measures. However, if we focus on the current Budget 2024, it maintains a balance between populism and pragmatic economic planning. This balanced approach reflects a strategy that combines short-term electoral incentives with long-term economic objectives.

Has the middle class been dealt a body blow with the changes in the tax treatment of capital gains across asset classes, especially real estate?

The changes in tax treatment for capital gains were anticipated. Buyback and tax-free dividend had a gap and an equalisation was important. The volumes in F&O trading had gone up rapidly and, in a way, this increase in Securities Transaction Tax (STT) on futures and options (F&O) will help protect the interests of the retail investors and safeguard them from the risks arising out of uninformed trading in the market segment. This, alongside modifications in capital gains taxation, may impact investment behaviour in the short-run; but the markets are resilient, and this will be absorbed and balance will return. 

Get all the latest news on buybacks here
 

Is the status quo on the capex outlay by the government a bit disappointing? What's keeping the private sector at bay?

Some may find this capex allocation modest considering the broader economic need. The private sector's hesitance can be attributed to global economic uncertainties, and cautious investment strategies amidst fluctuating market conditions and slow consumption. Current demand is not as robust as it should be, and there is a lack of strong future demand expectations. This conundrum limits confidence in investing. Businesses are currently less willing to take risks and prefer to limit their risk-taking to equity, avoiding borrowing money for investments. 

The government's continued emphasis on infrastructure development, coupled with incentives for private investments in sectors like manufacturing and MSMEs, may encourage more robust participation from the private sector. These efforts are expected to gradually build confidence and drive private sector engagement.

What are the top concerns of foreign investors and India Inc? 

Foreign investors and India Inc. often express concerns about regulatory consistency, infrastructure quality, and ease of doing business in India. While there is a perception that India may be losing some manufacturing advantage to countries like Vietnam and Taiwan, the great India story is that of the democratisation of entrepreneurship and the many start-ups we see emerging from not just the metro cities but from tier III and tier IV cities too. 

The government’s initiatives to empower entrepreneurship, invest in digital and physical infrastructure and give impetus to manufacturing, through schemes such as Production Linked Incentive (PLI), aim to strengthen India’s competitive edge. Continued focus on policy reforms, skill development, and investment in innovation and technology will be crucial to maintaining and enhancing India’s position as a global manufacturing hub.