New Delhi: With the economy in slowdown mode and expected to falter further, the Modi government on Friday came out with a slew of measures including the reversal of the income tax surcharge on FPIs, an upfront recap of PSBs and relief for the struggling auto sector.
Finance Minister Nirmala Sitharaman announced the policy measures in a 32-slide presentation on Friday. She promised to come out with two more installments of relief package in the coming weeks to boost sentiment.
With most engines of growth such as investment, demand, consumption, and exports slowing down, the pressure has been mounting on the government to act. The Modi government has come under opposition attack for distress across various sectors that have caused huge job losses.
Industry captains like Anand Mahindra, A.M. Naik of L&T, Adi Godrej and many others have also flagged the issue of weak demand and underscored the need for a stimulus package from the government.
Sandip Somany, President of the industry body FICCI hailed the government move saying it will give a major boost to the economy that had started showing signs of a deep slowdown.
“As these measures take effect, we are sure that these will lift the confidence of businesses and investors alike,” he said.
But industry certainly hopes the government would take more such measures as the measures announced on Friday is not sufficient to put the economy in high growth orbit and lift consumer sentiment.
Relief for FPIs
Much to the relief of the FPIs, the controversial surcharge on them was withdrawn by the government as part of measures to boost the economy but not before they pulled out about Rs 8,500 crore from the equity market.
In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (No.2) Act 2019 on long/short term capital gains arising from the transfer of equity shares in Sections 111A and 112, respectively of the Income Tax Act.
The Finance Minister also sought to empower the banks with the upfront recapitalisation of Rs 70,000 crore which will induce additional lendings and liquidity to the tune of Rs 5 lakh crore which will benefit corporates, retail borrowers, MSMEs, and small traders who have been hit the maximum due to the credit crunch.
She also announced the banks have now decided to pass on rate cuts through MCLR reduction to benefit all borrowers and this will reduce EMIs for housing loans, vehicles and other retail loans by directly linking repo rate to interest rates. The working capital loans for the industry will also get cheaper due to this.
There were also key announcements for the hard-hit auto sector. Bharat Stage IV vehicles purchased before March 2020 will remain operational for the full period of their registration. Sitharaman said she wanted to dismiss speculation that BS-IV vehicles would become illegal to drive after 2020 when BS-VI norms will kick in.
The other major announcement the Finance Minister made with regards to boosting demand was to do with a ban on buying vehicles imposed on government departments. The ban did not allow departments to buy new vehicles even if it was to replace old ones. There will also be adding 15 percent depreciation on all vehicles.
In an effort to boost the NBFCs, it was announced that more credit support will be given to the purchase of vehicles, and houses. Additional liquidity support to HFCs by Rs 20,000 crore by NHB is to be given, increasing it to Rs 30,000 crore.
The measures announced also included that all pending GST refunds due to MSMEs will be paid within 30 days and in future, all GST refunds will be paid within 60 days from the date of application.
For increasing capital flows and strengthening financial markets and deepening the bond market, the Finance Minister said the government would soon take further action on the development of Credit Default Swap market soon in consultations with the RBI and the SEBI.
There is also a proposal to set up an organisation to provide credit enhancement for infrastructure and housing projects for enhancing debt flow towards such projects.
An inter-ministerial task force will be formed and chaired by Secretary, Economic Affairs, to finalise infra projects. The Budget has announced Rs 100 lakh crore worth of infra projects in the next 5 years.
The Depository Receipt Scheme 2014 is expected to be operationalised soon to give Indian companies more access to foreign funds through ADR and GDR. Finance Ministry is also working with the RBI to bring offshore rupee market to domestic stock exchanges and permit trading of USD-INR derivatives in GIFT IFSC soon.