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

REAL-Economics.com

Macroeconomics

The Indian government's tax revenues are up 33.5% YoY in the fiscal year to date -- one of the fastest growth rates anywhere in the world. Excise duty revenues (paid primarily by manufacturers) are up a whopping 51% YoY (suggesting far more robust manufacturing growth than the outdated IPI shows), and personal income tax revenue is up 32% YoY. But corporate tax receipts declined 1.4% YoY, and profit margins are likely to be hurt even more as wage pressures rise after a big pay increase for 10 million government employees.The good monsoon is a Goldilocks event for India's economy, as it tends to lower food prices and bolster farm incomes -- thereby buoying private consumption. The implementation of the Seventh Pay Commission's report (which occurs once every 10 years) will provide an additional one-off boost to private consumption over the next 12 months, as Central and state government employees receive an average pay hike of 23% (and much more at the lower levels of the bureaucracy). While this will indeed boost Consumption and real GDP growth, its long tail will hurt corporate bottom lines -- as the demonstration effect of much higher salaries for government employees pushes up wages in the private sector, further hurting corporate profit margins. India's real GDP will grow 8.4% in 2H FY2016/17 (Oct16-Mar17), and accelerate closer to 9% YoY growth in the next fiscal year helped by the combination of stronger private consumption, and a cyclical rebound in exports of goods and services. Helped by the current account swinging back to surplus this fiscal year, the 175bp of policy rate cuts since the beginning of 2015 should begin to spur a recovery in fixed-investment spending from the current quarter -- aided by another 50bp of rate cuts that we expect by April 2017. That will broad-base the economic recovery, although bank credit for capex will be slowest to recover. If the Goods and Services Tax (GST) is introduced with a 16-17% tax rate in April 2017, real GDP growth in FY2017 would be closer to 10%, as the whole country begins to benefit from the efficiency gains arising from a single national value-added taxation system, boosting revenues and allowing government spending to accelerate considerably, especially on infrastructure. The GST Council's meetings next month are crucial, and we are assuming that further delays will occur -- and that the Council will be tempted to start with a higher tax rate than the 16-17% that we consider ideal (and largely a replacement for the central excise duty, plus sales taxes now charged in the states). Given these uncertainties, we assume that the GST will not come into force on 1 April 2017 -- but this will not preclude a broad-based economic acceleration in 2017 to 9% real GDP growth. We advise investors to take profit on India by mid-November 2016, as the combination of a corporate profit squeeze and a US Fed Funds rate hike cause a sell-off in Indian equities. But rate-sensitive sectors (automobiles, banks and leveraged sectors like infrastructure and real estate) should lead the rally in early-2017 as the market begins to look beyond shrinking margins to the prospect of stronger top-line growth in the fastest growing major economy in the world.

The Indian government's tax revenues are up 33.5% YoY in the fiscal year to date -- one of the fastest growth rates anywhere in the world. Excise duty revenues (paid primarily by manufacturers) are up a whopping 51% YoY (suggesting far more robust manufacturing growth than the outdated IPI shows), and personal income tax revenue is up 32% YoY. But corporate tax receipts declined 1.4% YoY, and profit margins are likely to be hurt even more as wage pressures rise after a big pay increase for 10 million government employees.The good monsoon is a Goldilocks event for India's economy, as it tends to lower food prices and bolster farm incomes -- thereby buoying private consumption. The implementation of the Seventh Pay Commission's report (which occurs once every 10 years) will provide an additional one-off boost to private consumption over the next 12 months, as Central and state government employees receive an average pay hike of 23% (and much more at the lower levels of the bureaucracy). While this will indeed boost Consumption and real GDP growth, its long tail will hurt corporate bottom lines -- as the demonstration effect of much higher salaries for government employees pushes up wages in the private sector, further hurting corporate profit margins. India's real GDP will grow 8.4% in 2H FY2016/17 (Oct16-Mar17), and accelerate closer to 9% YoY growth in the next fiscal year helped by the combination of stronger private consumption, and a cyclical rebound in exports of goods and services. Helped by the current account swinging back to surplus this fiscal year, the 175bp of policy rate cuts since the beginning of 2015 should begin to spur a recovery in fixed-investment spending from the current quarter -- aided by another 50bp of rate cuts that we expect by April 2017. That will broad-base the economic recovery, although bank credit for capex will be slowest to recover. If the Goods and Services Tax (GST) is introduced with a 16-17% tax rate in April 2017, real GDP growth in FY2017 would be closer to 10%, as the whole country begins to benefit from the efficiency gains arising from a single national value-added taxation system, boosting revenues and allowing government spending to accelerate considerably, especially on infrastructure. The GST Council's meetings next month are crucial, and we are assuming that further delays will occur -- and that the Council will be tempted to start with a higher tax rate than the 16-17% that we consider ideal (and largely a replacement for the central excise duty, plus sales taxes now charged in the states). Given these uncertainties, we assume that the GST will not come into force on 1 April 2017 -- but this will not preclude a broad-based economic acceleration in 2017 to 9% real GDP growth. We advise investors to take profit on India by mid-November 2016, as the combination of a corporate profit squeeze and a US Fed Funds rate hike cause a sell-off in Indian equities. But rate-sensitive sectors (automobiles, banks and leveraged sectors like infrastructure and real estate) should lead the rally in early-2017 as the market begins to look beyond shrinking margins to the prospect of stronger top-line growth in the fastest growing major economy in the world.  

India's Economy Will Accelerate but EPS Growth Is Likely to Slow Further!