Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

PK Basu has 34 years experience covering Asia's economies and markets (equities, fixed income and currencies), including 20 years covering the global economy. He was Chief Economist (SE Asia & India) at Credit Suisse First Boston for 5 years, and Chief Asia (x-Jpn) Economist at Daiwa Securities for a similar period. Among other roles, he was global head of research at Maybank Kim Eng, Malaysia equity research head and chief ASEAN economist at Macquarie, Chief Economist at ICICI Securities, ASEAN economist at UBS and the first chief economist at Khazanah Nasional (where he was co-head of research, and led all agri-business initiatives). PK Basu started his career in the Asia Service of WEFA (Wharton Econometrics) in Philadelphia in 1990, rising to be Director of their Asia Service in June 1994. 
PK's book, "Asia Reborn: A continent rises from the ravages of Colonialism and War to a New Dynamism" won the Tata Literature First Book Award (non-fiction) for 2018. It is the first single chronicle of the modern economic and political history of the whole of Asia (from Iraq and Turkey to Korea and Japan, and everything in between), told from an Asian perspective.

Chief Economist & Political Strategist

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Macroeconomics

The fiscal deficit for FY2017/18 is projected to decline to 3.2% of GDP (from a likely 3.5% of GDP this year), despite a big 25% YoY projected increase in capital expenditure by the government (mainly on infrastructure, and a big focus on rural house-building, which should have significant multipliers). In the current year, the revenue deficit is down to 2.1% of GDP (vs the budget target of 2.3%), and this is to decline further to 1.9% of GDP in FY2017/18. With the government's market borrowings declining, there is room for interest rates to fall. Tax revenue was up 18.3% YoY in the first 9 months of FY2016/17 (Apr-Dec16), with direct tax revenues accelerating sharply as a consequence of VDIS and Demonetization. Reflecting the underlying strength of the manufacturing sector (obscured by the obsolete IPI), excise duty revenues were up 43.7% YoY in Apr-Dec16; Service Tax revenues were up 25% YoY and Income tax revenues 20.5% YoY. The official projection of 17% growth in revenue in FY2017/18 is conservative -- because the direct tax base is likely to widen as the data from Demonetization yields substantially more revenue. This allowed FM Jaitley to cut the corporate tax rate for SMEs (those with turnover of less than Rs500mn) to 25% (from 30%) and halve the personal income tax rate for the lowest slab of income earners -- while still boosting public investment.  FDI norms were further liberalized, and the Foreign Investment Promotion Board (FIPB) was abolished -- removing one factor that slowed the inflow of FDI. Labour market reforms made some progress, complementing the recent incentive package for the textile sector. And electronics manufacturing received substantial tax benefits too, as Jaitley sought to encourage the 250 FDI projects underway in the sector. And this government's focus on Skills Development and Training received a considerable further fillip. Although this was the second consecutive Budget to pay particular attention to boosting rural incomes and infrastructure, it provided a comprehensive strategy to boost the overall economy. We disagree with the consensus view that India's economy will be slow to rebound from the setback to growth in the last quarter. Although rural consumption will only slowly recover in the current quarter, we expect the Indian economy to normalize completely in FY2017/18, and accelerate to 8% real GDP growth driven by stronger consumption spending (aided by both stronger rural and urban incomes) and a gradual rebound in investment spending -- aided by lower interest rates, and a conducive fiscal policy.

The fiscal deficit for FY2017/18 is projected to decline to 3.2% of GDP (from a likely 3.5% of GDP this year), despite a big 25% YoY projected increase in capital expenditure by the government (mainly on infrastructure, and a big focus on rural house-building, which should have significant multipliers). In the current year, the revenue deficit is down to 2.1% of GDP (vs the budget target of 2.3%), and this is to decline further to 1.9% of GDP in FY2017/18. With the government's market borrowings declining, there is room for interest rates to fall. Tax revenue was up 18.3% YoY in the first 9 months of FY2016/17 (Apr-Dec16), with direct tax revenues accelerating sharply as a consequence of VDIS and Demonetization. Reflecting the underlying strength of the manufacturing sector (obscured by the obsolete IPI), excise duty revenues were up 43.7% YoY in Apr-Dec16; Service Tax revenues were up 25% YoY and Income tax revenues 20.5% YoY. The official projection of 17% growth in revenue in FY2017/18 is conservative -- because the direct tax base is likely to widen as the data from Demonetization yields substantially more revenue. This allowed FM Jaitley to cut the corporate tax rate for SMEs (those with turnover of less than Rs500mn) to 25% (from 30%) and halve the personal income tax rate for the lowest slab of income earners -- while still boosting public investment.  FDI norms were further liberalized, and the Foreign Investment Promotion Board (FIPB) was abolished -- removing one factor that slowed the inflow of FDI. Labour market reforms made some progress, complementing the recent incentive package for the textile sector. And electronics manufacturing received substantial tax benefits too, as Jaitley sought to encourage the 250 FDI projects underway in the sector. And this government's focus on Skills Development and Training received a considerable further fillip. Although this was the second consecutive Budget to pay particular attention to boosting rural incomes and infrastructure, it provided a comprehensive strategy to boost the overall economy. We disagree with the consensus view that India's economy will be slow to rebound from the setback to growth in the last quarter. Although rural consumption will only slowly recover in the current quarter, we expect the Indian economy to normalize completely in FY2017/18, and accelerate to 8% real GDP growth driven by stronger consumption spending (aided by both stronger rural and urban incomes) and a gradual rebound in investment spending -- aided by lower interest rates, and a conducive fiscal policy. 

India Budget FY2017/18: Prudent, but with a Focus on Boosting Investment