Benefits of fiscal consolidation will outweigh capital gains tax hike impact, says Kotak's Nilesh Shah

expressed optimism that India could transition from a primary deficit to a primary surplus country within the next three to four years.

Nilesh Shah, Managing Director of Kotak Mutual Fund, believes that while there are concerns around the increase in capital gains tax announced in the Union Budget, the benefits of fiscal consolidation would outweigh the potential drawbacks of the tax increase.

"I am delighted by the fiscal consolidation in the budget," said Shah in an exclusive interaction with Moneycontrol.

"Last year, the fiscal deficit was 5.8 percent when the budget was presented, and now we are talking about 4.9 percent. With tax buoyancy, potential divestment, and potential higher dividends from the RBI as well as PSU companies, this number can even surprise further,” he said.

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The central government has set a fiscal deficit target of 4.9 percent of GDP for 2024-25, as per the budget presented by Finance Minister Nirmala Sitharaman.

This target is notably lower than the 5.1 percent set in the interim Budget, which itself was a substantial 70 basis points below the previous fiscal year's revised estimate of 5.8 percent. (One basis point is equal to one-hundredth of a percentage point.)

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Meanwhile, Shah highlighted the government's commitment to reducing the fiscal deficit further, targeting a 4.5 percent fiscal deficit for the next year and aiming to lower India's debt-to-GDP ratio in the following years.

He expressed optimism that India could transition from a primary deficit to a primary surplus country within the next three to four years. "The combined fiscal deficit of the center and state will be less than 8 percent after some time," Shah added.

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On real estate, Shah explained that while the real estate industry needs to address issues of transparency, governance, and consumer satisfaction; the changes in capital gains tax might not significantly alter investment flows. "More than the taxation, it is the governance practices which will bring investors' flow towards financial services," he noted.

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