Shankar Sharma warns of India’s “stock marketification” as tax debate heats up – News Air Insight

Veteran investor Shankar Sharma on Tuesday warned that India’s growing reliance on stock market taxes to fund capital expenditure risks leaving the economy vulnerable, describing the trend as the “stockmarketification” of the fiscal framework.

In a post on microblogging site X, Sharma said: “The real problem which I have pointed out many times in our fisc is the ‘Stockmarketification’ of it: we are now heavily reliant on a very volatile & short term source of capital and are using that to fund long dated capex. If a company were to do this, we would be shorting it.”

Response to Ajay Bagga’s tax critique

Sharma’s comments came in response to a post by market expert Ajay Bagga, who argued that high capital gains taxes and levies such as the securities transaction tax (STT) are weighing on investor sentiment. Bagga noted that “we will soon complete 13 months of the Nifty being below its all time high hit in end Sep 2024” and said “the golden goose is being butchered in the quest to extract the maximum from the 5-6 crore investors/traders/affluent.”

Bagga pointed to South Korea as a counterexample, saying that the shelving of higher capital gains taxes there had helped boost investor sentiment and coincided with record highs in Korean equities. He added that the Indian government is set to collect more than Rs 60,000 crore in STT this year, despite markets delivering negative returns for many investors.

Sharma’s rebuttal: growth, not taxes, is the problem

Sharma, however, pushed back against the idea that India’s weak market performance stems mainly from taxes. “The market is not negative because of taxes. It is negative because of poor growth,” he wrote.

He argued that the country’s recent growth has been driven largely by government capital expenditure, and that this spending in turn has been funded by stock market–related taxes. “Whatever growth we are getting has been a function of high government Capex. In reasonable part, the money for that is coming from the stock market taxes. (Corporate taxes, personal tax, all have been cut over time). So if you reduce the stock market taxes, you will not have enough capital to spend on capital expenditure which will in turn, reduce growth, which in turn, will reduce stock market performance,” Sharma said.Sharma also noted that India has managed to grow faster in the past without leaning so heavily on market levies. “In the past we have seen India grow between 8 and 10%, without this heavy reliance on the stock market for providing budgetary support. What is really useful is to analyse that as to how we got here,” he wrote.Also read | Ola Electric vs Ather Energy shares: Which EV bet looks stronger for your portfolio right now?

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)