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Budget 2019: Higher Fiscal Slippage Won’t Deter Foreign Investments In India, Says Mark Mobius

The deficit won’t deter foreign investments if higher slippages are aimed at improving India’s economic performance, Mobius said.

A pedestrian carries an Indian national flag as he arrives to attend a community reception for Narendra Modi, India’s prime minister, at Wembley Stadium in London, U.K. (Photographer: Simon Dawson/Bloomberg)
A pedestrian carries an Indian national flag as he arrives to attend a community reception for Narendra Modi, India’s prime minister, at Wembley Stadium in London, U.K. (Photographer: Simon Dawson/Bloomberg)

India has a lot of room for higher fiscal deficit and to lower interest rates to spur economic growth.

That’s according to Mark Mobius, co-founder of Mobius Capital Partners, who expects India’s fiscal deficit to rise to as high as 5 percent of its gross domestic product. The deficit, he said, won’t deter foreign investments if the higher slippages are aimed at improving the country’s economic performance.

“India is a fast-growing economy,” Mobius told BloombergQuint in an interaction, adding the country needs “more and more finance” to increase its infrastructure spending, which would boost productivity and economic growth.

Budget 2019: Higher Fiscal Slippage Won’t Deter Foreign Investments In India, Says Mark Mobius

India is facing an economic slowdown due to reduced consumer demand and falling investments. As Finance Minister Nirmala Sitharaman presents the Union budget on Friday, all eyes will be on whether the Narendra Modi administration would offer a fiscal stimulus to the economy. The Modi administration, in its maiden term, breached its fiscal deficit targets for the last two financial years.

Fiscal slippage, according to Mobius, would become a concern only if rating agencies downgraded the country by multiple notches. It’s unlikely for the rating agencies to take such a negative stand, he said.

Major Concerns

Focus on improving employment and increasing investment in infrastructure, Mobius said, are the larger issues that need to be tackled first as the rest will then take care of itself.

He suggested that the government step up efforts to privatise enterprises to reduce constraints on the fiscal deficit. “The government can bring in a lot of income by selling state enterprises or a part of them.”

There is a need to see real, forceful movement on part of the government to bring these issues to the fore and identify where the growth can be.
Mark Mobius, Co-founder, Mobius Capital Partners

The Mobius Way

Mobius said he remained overweight on infrastructure and manufacturing companies, while being positive on a few good quality non-banking financial companies’ stocks that are available at a bargain. Mobius expects the government’s minimum income plan and other incentives for farmers to benefit non-bank lenders to pay off their debts.

Mobius Capital Partners would also remain focused on companies that are willing to make changes in corporate governance, he said.

“Corporate governance is now coming to the fore because environmental, social and governance issues are foremost in the minds of investors,” Mobius said. “Companies willing to improve (ESG) ratings, see improvement in stock prices as well.”

Watch the full interview here: