Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

<ul>
<li>For a second consecutive year, fiscal policy is mildly contractionary while accommodating a 30%+ hike in public investment. Strong tax revenues help lower the fiscal deficit by 0.5% of GDP.</li>
<li>Surging nominal GDP boosted corporate &amp; income tax revenue by 16%YoY+ and central GST revenue by 30%YoY in Apr-Dec'22. Actual FY23 deficit will be 6% (rather than 6.4%) of GDP. </li>
<li>We expect nominal GDP to grow 13% (vs 10.4% official projection) in FY24, cutting fiscal deficit to 5.5% of GDP, thus crowding-in private investment, enabling real GDP to grow 7.2%. </li>
</ul>


For a second consecutive year, fiscal policy is mildly contractionary while accommodating a 30%+ hike in public investment. Strong tax revenues help lower the fiscal deficit by 0.5% of GDP.
Surging nominal GDP boosted corporate &amp; income tax revenue by 16%YoY+ and central GST revenue by 30%YoY in Apr-Dec'22. Actual FY23 deficit will be 6% (rather than 6.4%) of GDP. 
We expect nominal GDP to grow 13% (vs 10.4% official projection) in FY24, cutting fiscal deficit to 5.5% of GDP, thus crowding-in private investment, enabling real GDP to grow 7.2%. 


India: Surging Tax Revenue Helps Lower PSBR, Ensuring Capex-Led Growth

<ul>
<li>India's real policy rate was +0.55% in Dec'22, as CPI inflation receded to 5.72%YoY, within the RBI's 2-6% inflation target for the second consecutive month. No more rate hikes likely. </li>
<li>Industrial output expanded 7.1% YoY in Nov'22, with consumer nondurables output up 8.9%YoY -- tentative sign of a turnaround in consumption after a half-year of sluggishness. Consumer durables rebounded too. </li>
<li>After a stagnant decade, capital goods output expanded 20.7%YoY in Nov'22 (+14.9%YoY in Apr-Nov'22), capital goods imports +15.4%YoY. Rebounding GFCF will ensure 7.5% RGDP growth in FY23, 7.2% in FY24.</li>
</ul>


India's real policy rate was +0.55% in Dec'22, as CPI inflation receded to 5.72%YoY, within the RBI's 2-6% inflation target for the second consecutive month. No more rate hikes likely. 
Industrial output expanded 7.1% YoY in Nov'22, with consumer nondurables output up 8.9%YoY -- tentative sign of a turnaround in consumption after a half-year of sluggishness. Consumer durables rebounded too. 
After a stagnant decade, capital goods output expanded 20.7%YoY in Nov'22 (+14.9%YoY in Apr-Nov'22), capital goods imports +15.4%YoY. Rebounding GFCF will ensure 7.5% RGDP growth in FY23, 7.2% in FY24.


India: Growth on Track Even as Inflation Abates; No More Rate Hikes Likely

<ul>
<li>After 9.7%YoY growth in 1HFY23, we expect real GDP growth of 7.5% for the full FY23, led by investment spending, which is being crowded-in as the fiscal deficit stays contained. </li>
<li>Nominal GDP grew 16.2%YoY in 2QFY23, bolstering government revenue and corporate earnings. The fiscal deficit in Apr-Oct'22 was 45.6% of the FY23 target, having already exceeded budget targets in Apr-Oct'19&amp;'18.</li>
<li>With Brent crude prices falling below US$85/bbl, CPI inflation is likely to be below 6% YoY in Jan-Mar'23. We expect 7.3% real GDP growth in FY24 despite the OECD recession. </li>
</ul>


After 9.7%YoY growth in 1HFY23, we expect real GDP growth of 7.5% for the full FY23, led by investment spending, which is being crowded-in as the fiscal deficit stays contained. 
Nominal GDP grew 16.2%YoY in 2QFY23, bolstering government revenue and corporate earnings. The fiscal deficit in Apr-Oct'22 was 45.6% of the FY23 target, having already exceeded budget targets in Apr-Oct'19&amp;'18.
With Brent crude prices falling below US$85/bbl, CPI inflation is likely to be below 6% YoY in Jan-Mar'23. We expect 7.3% real GDP growth in FY24 despite the OECD recession. 


India: Investment-Led Growth Crowded-In as Government's Fiscal Deficit Is Contained

<ul>
<li>In the first 9 months of FY2021/22, the fiscal deficit was 50% of the budgeted estimate for the full-year. More realistically, this year's fiscal deficit will be 5.7% of GDP. </li>
<li>Given more credible revenue estimates, the deficit for FY2022/23 will decline to 4.9%  of GDP. The government's lower borrowing requirement will help crowd-in private investment. </li>
<li>A 35%YoY increase in public investment will fund a multimodal connectivity rollout, while carbon-fibre will reach all villages, solar and 5G will be harnessed to create a tech virtuous circle. </li>
</ul>


In the first 9 months of FY2021/22, the fiscal deficit was 50% of the budgeted estimate for the full-year. More realistically, this year's fiscal deficit will be 5.7% of GDP. 
Given more credible revenue estimates, the deficit for FY2022/23 will decline to 4.9%  of GDP. The government's lower borrowing requirement will help crowd-in private investment. 
A 35%YoY increase in public investment will fund a multimodal connectivity rollout, while carbon-fibre will reach all villages, solar and 5G will be harnessed to create a tech virtuous circle. 


India: Budget Aims to Generate Concentric Virtuous Circles & Crowd-In Private Capex

India's exports grew 86% YoY in Apr-Jun 2021, and were 18.3% higher than in Apr-Jun 2019 (the pre-Covid times). The return to pre-Covid levels was clearest in June (+48.3% YoY, and 30% up from June 2019) and July (+47.9% YoY, and 34% above July 2019). The height of the second Covid wave did hurt industrial growth in May 2021 (up 29.3% YoY, but down 12.6% from May 2019), although industrial output surpassed 2019 levels in April; for April-May 2021, manufacturing output grew 88.8% YoY. And in 1H 2021, India's steel output (+31.3% YoY) was the fastest-growing among the world's top-10 steel producers. A real recovery is set to gather momentum in 2H 2021. The clearest evidence of a powerful economic rebound comes from the revival in net tax revenues, which were up 97% YoY in 1Q-FY2021/22, and were 26.7% of the full-year target in 1Q of this fiscal year, compared with reaching just 14.4% of the full year target in Apr-Jun 2019. However, while total government spending in Apr-Jun 2021 was 23.6% of the full-year target, it was 25.9% of full-year target in Apr-Jun 2019 -- the consequence being that the fiscal deficit in Apr-Jun 2021 was just 18.2% of the full-year target, while in Apr-Jun 2019 it had been a whopping 61.4% of the target. Fiscal prudence is helped by a surge in corporate tax revenue (+128% YoY, but also 75% higher than in Apr-Jun 2019) and soaring union excise duties (mainly on petrol and diesel, which are encouraging a shift to renewables across the energy spectrum). Remarkable fiscal prudence should ensure that deficits this year will be below target. With exports, industrial output and tax revenue soaring, the economy is set to accelerate, and comfortably achieved 11% real GDP growth this year, especially as the accelerated vaccination drive helps contain any third Covid wave.  That corporate tax revenues in Apr-Jun 2021 were 75% higher than in Apr-Jun 2019 suggests a powerful acceleration in corporate profitability. That pace of corporate profit acceleration will ensure that valuations will remain reasonable despite the steadily rising equity prices. We would recommend staying Overweight India.

India's exports grew 86% YoY in Apr-Jun 2021, and were 18.3% higher than in Apr-Jun 2019 (the pre-Covid times). The return to pre-Covid levels was clearest in June (+48.3% YoY, and 30% up from June 2019) and July (+47.9% YoY, and 34% above July 2019). The height of the second Covid wave did hurt industrial growth in May 2021 (up 29.3% YoY, but down 12.6% from May 2019), although industrial output surpassed 2019 levels in April; for April-May 2021, manufacturing output grew 88.8% YoY. And in 1H 2021, India's steel output (+31.3% YoY) was the fastest-growing among the world's top-10 steel producers. A real recovery is set to gather momentum in 2H 2021. The clearest evidence of a powerful economic rebound comes from the revival in net tax revenues, which were up 97% YoY in 1Q-FY2021/22, and were 26.7% of the full-year target in 1Q of this fiscal year, compared with reaching just 14.4% of the full year target in Apr-Jun 2019. However, while total government spending in Apr-Jun 2021 was 23.6% of the full-year target, it was 25.9% of full-year target in Apr-Jun 2019 -- the consequence being that the fiscal deficit in Apr-Jun 2021 was just 18.2% of the full-year target, while in Apr-Jun 2019 it had been a whopping 61.4% of the target. Fiscal prudence is helped by a surge in corporate tax revenue (+128% YoY, but also 75% higher than in Apr-Jun 2019) and soaring union excise duties (mainly on petrol and diesel, which are encouraging a shift to renewables across the energy spectrum). Remarkable fiscal prudence should ensure that deficits this year will be below target. With exports, industrial output and tax revenue soaring, the economy is set to accelerate, and comfortably achieved 11% real GDP growth this year, especially as the accelerated vaccination drive helps contain any third Covid wave.  That corporate tax revenues in Apr-Jun 2021 were 75% higher than in Apr-Jun 2019 suggests a powerful acceleration in corporate profitability. That pace of corporate profit acceleration will ensure that valuations will remain reasonable despite the steadily rising equity prices. We would recommend staying Overweight India.   

India: Exports Lead Industrial Rebound, While Fiscal Policy Remains Prudent

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India: Surging Tax Revenue Helps Lower PSBR, Ensuring Capex-Led Growth

CGST revenue up 30%YoY & income taxes 16%YoY in Apr-Dec'22, enabling 33% boost to public investment for FY24 but still lowering the fiscal deficit....

Prasenjit K. Basu

India: Growth on Track Even as Inflation Abates; No More Rate Hikes Likely

Real policy rate of +0.55% ensures no rate hikes are likely this year, as food & energy inflation recede. Rebounding capital goods output & imports...

Prasenjit K. Basu

India: Investment-Led Growth Crowded-In as Government's Fiscal Deficit Is Contained

With the fiscal deficit well-contained, GFCF is being crowded-in -- now 21% higher than the pre-Covid quarter 3 years ago. Lower Brent will allow...

Prasenjit K. Basu

India: Budget Aims to Generate Concentric Virtuous Circles & Crowd-In Private Capex

Revenue receipts in Apr-Dec21 reached 96% of the FY2021/22 target, while spending was merely in line. With deficits declining this year & next,...

Prasenjit K. Basu

India: Exports Lead Industrial Rebound, While Fiscal Policy Remains Prudent

Jan-Jul21 exports up 47% YoY, with Jun-Jul 32% higher than 2019. Corp tax revenue is up 128%YoY & 75% above 2019, so fiscal deficit in Apr-Jun21...

Prasenjit K. Basu

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