Talking to ET Now, Ravi Bhatia, S&P, says the rural sector is important from an election point of view. The expenditure on rural India is understandable in an election year.
Edited excerpts:
The fiscal consolidation path is delayed. However, India still is quite better off as compared to other nations on the fiscal front. What does higher fiscal deficit really mean for sovereign rating for India?
One of the big concerns around the India rating is the high debt stock and the high fiscal deficit and of course we look at it on a consolidated basis with the states and centre and there is also some concern on if there is a derailment and what signal this gives to the states. It is still an issue that we are watching but as I said, we did sort of factor in some election related slippage on the deficit side.
There has been a lot of focus on rural spending as we saw. Lots of thrust being given on the growth in the rural areas whether it is the rural women, infrastructure or farm income. Do you think this focus on rural spending and higher MSPs particularly will aid the economic growth and give the necessary push that it needs?
We have seen this before the push for the rural economy. To some extent, it did not really get the highest returns. Also, the question is how much of it is just talk and how much of it is actually real but the rural sector is important from an election point of view. It is understandable in an election year.
Coming to the introduction of the LTCG tax, while most experts believe that the introduction of LTCG is negative, what is your view on domestic and foreign flows to India versus other emerging markets and other upcoming economies?
Given the state of the economy right now, it was largely expected. The long-term capital gains tax is a good source of taxation. It should deliver over the years. There is nothing really negative on it. In terms of the inflows, the fundamentals already drive that. The taxation issues are at the margin.
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