Measures to Stimulate Higher Economic Growth

The Finance Minister in her press conference announced new measures to revive growth, boost consumption and uplift investor and consumer sentiments, including rolling back the surcharge on tax on foreign portfolio investors (FPIs) announced in the budget, but stopped short of the full-blown fiscal stimulus many sections of industry have been seeking.

Measures ranging from tax sops to ease of doing business to boost the sagging fortunes of the Indian economy announced by the Finance Minister might help brighten the lives of mutual fund investors in the coming days. The stock market has been going through a rough phase lately due to the widespread pessimism in the economy and in the absence of any economic package in the last budget.

It is pertinent to note that the stock market activity has taken a massive beating primarily on the back of raise in surcharge on the super-rich, coupled with the unending jittery over US-China trade war, the slowdown in the German economy, Argentine peso sliding to its all-time low and several other global factors. The “NIFTY 50” dropped as much as 10.09% to 10,741.35 (August 22, 2019) from a level of 11,946.75 as on July 04, 2019, before the presentation of Union Budget 2019-20.

Though Nirmala Sitharaman had earlier declined to comment on the speculations of a stimulus package, she has been meeting industry representatives from auto, telecom, banking and financial, SMEs (Small and Medium Enterprises), among others, for the past several days to understand their concerns. Major demands of the slowdown-hit industries, especially automobile, FMCG (Fast-Moving Consumer Goods), include a reduction in the GST (Goods and Services Tax) and the rollback of the super-rich tax for FPIs (Foreign Portfolio Investors).

Here is how the Finance Minister addressed the media on measures to boost the economy and tackle the current situation (key takeaways from the Finance Minister’s presser):

Giving in to the demands of overseas investors, Finance Minister Nirmala Sitharaman announced rollback of enhanced surcharge on foreign portfolio investors (FPI) levied in the Budget. The enhanced surcharge on FPI has severely impaired the market sentiment. Many FPIs, especially pension funds and sovereign funds, that were listed as trusts were hit by the new surcharge announced in the budget, and many of them have started selling heavily soon after that.

With the scrapping of the enhanced surcharge, the government has finally addressed concerns of the stock market. The move will definitely help to improve the sentiment in the short term.

The Finance Minister has announced upfront capital infusion of Rs 70,000 crore into public sector banks, a move aimed at boosting lending and improving liquidity situation. The move is expected to generate an additional lending and liquidity in the financial system up to Rs 5 lakh crore.

Retail loans such as for housing, vehicles and consumer goods are expected to get cheaper as the Finance Minister further said that banks have decided to pass on RBI rate cut benefits to borrowers through MCLR reduction. Further, banks will launch repo rate and external benchmark-linked loan products that will lead to reduced easy monthly EMIs.

The Finance Minister announced that CSR (Corporate Social Responsibility) violation will be treated as a civil liability and not as a criminal offence. She said the Ministry of Corporate Affairs will review the sections under the Companies Act. “CSR violations… not be treated as criminal offence and will be civil liability,” Sitharaman, who also holds the charge of the corporate affairs ministry, said.

The government has provided for companies through revised orders, time for completing ongoing projects towards fulfilling their CSR obligations.

The Finance Minister announced several measures to give a boom to auto sector. The Finance Minister said that the BS-IV vehicles bought till March 2020 will remain operational for entire period of registration.

The Finance Minister lifted the ban on purchase of vehicles by the government departments, and has also deferred the decision to hike the one-time registration fee on vehicles till June 2020. To increase the demand in auto sector, an additional depreciation of 15% is allowed, taking it to 30%, on vehicles acquired from now till March 2020.

It is announced that both electric vehicles (EVs) and Internal Combustion Vehicles (ICV) will continue to be registered. The minister said the government’s focus will be on setting up of infrastructure for development of ancillaries/ components, including batteries for exports.

Moving on to Infrastructure, Sitharaman also proposed to establish an organisation to provide credit enhancement for infrastructure and housing projects with an aim to enhance fund flows towards such projects. The minister said that in order to improve domestic bond market, the finance ministry will work with the RBI to make it more conducive for investors and bond issuers, as well as facilitate increased trading for price discovery.

Addressing the liquidity shortage in the MSME sector, the government announced that all their pending GST refunds will be paid within 30 days. While announcing the same, Sitharaman said that in future, all GST refunds of micro, small and medium enterprises (MSMEs) will be paid within 60 days from the date of application.

The Finance Minister also said the decision regarding ease of credit, marketing, technology and delayed payments to MSMEs will be taken within 30 days on recommendations of the UK Sinha Committee. The government would also consider amendment to the MSME Act to move towards a single definition.

In a major relief to entrepreneurs and start-ups, the Finance Minister said that the ‘angel tax’ provision will be withdrawn for all the start-ups and their investors. Angel tax has been a major issue among entrepreneurs and in the start-up ecosystem. Although the government announced some measures earlier, but the start-ups were not satisfied and wanted a complete revocation of the tax liability.

The Government has also decided to set-up a dedicated cell for addressing taxation issues of start-ups.