Government Announces Measures To Revive Growth, Boost Consumption And Uplift Investor And Consumer Sentiment

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New Delhi: To address the economic slowdown in the country, Union finance minister Nirmala Sitharaman has announced on August 23 measures to revive growth, boost consumption and uplift investor and consumer sentiment, including rolling back the surcharge on tax on foreign portfolio investors (FPIs) announced in the budget. But she stopped short of the full-blown fiscal stimulus that many sections of industry have been seeking.

The measures include the upfront recapitalisation of state-owned banks (which could enable credit up to Rs 5 trillion) and steps to boost demand in the stressed auto sector. Specifically they addressed five issues: Infrastructure spending; concerns on tax terrorism; improving the lot of small and medium enterprises; boosting the prospects of the auto sector; and improving credit flow.

The finance minister also promised two more instalments of similar measures, one targeting the ailing real estate sector, in coming weeks. Stock markets rose in anticipation of the package after news of a press briefing called by the finance minister at 5pm filtered out. BSE’s benchmark Sensex rose 0.63% to close at 36,701.16.

The Indian economy grew by 5.8%, the lowest in five years in the January-March quarter of 2018-19. GDP growth has declined consistently since last year. The auto sector, a weathervane of economic sentiment and also industrial health, has been especially hard hit with passenger car sales in July falling 30% compared to a year ago. Against this background, the clamour for a revival package rose.

“Enhanced surcharge on FPI goes... surcharge on domestic investors also goes.. In other words, the pre-budget position is restored,” the finance minister said while announcing measures to achieve higher economic growth. The government was under pressure to roll back surcharge on high-networth individuals on July 5 that also impacted Foreign Portfolio Investors (FPIs) investing in the country through trusts. The controversial tax measures saw foreign investors pulling money out of Indian markets. The BSE Sensex fell 8% or 3,040 points between July 5, the day of the Union Budget and August 22.

High-networth individuals (HNIs) earning over ~2 crore a year will, however, continue to pay the enhanced surcharge as announced in the budget. The government may review the same after 75th anniversary of India’s independence, she said. The roll-back on FPIs will cost about ~1,400 crore to the government.

Sitharaman said she was confident that the tax departments would meet their revenue targets without resorting to any kind of coercion. “On or after 1st October, 2019, all notices, summons, orders, etc by the income-tax authorities shall be issued through a centralised computer system and will contain a computer-generated unique Document Identification Number (DIN) and any communication issued without computer-generated DIN shall be non est in law”, she said, adding that from October 1, all notices to be disposed off within three months from the date of reply. The finance minister also announced that the angel tax (the dreaded Section 56(2)(viib) of the IT Act would “not be applicable to start-ups registered” with DPIIT.

Homebuyers, particularly of the national capital region (NCR) and Mumbai, can expect more sops and policy reforms soon as the finance minister will announcement another stimulus package next week. “This is only the start... Next week again we shall be coming for one more set of announcement,” Sitharaman said, adding that the announcement could take place in the middle of the next week.

Sitharaman announced a relief package for the distressed automobile sector, which was resorting to layoffs and output cuts. The package included allowing additional 15% depreciation on vehicles, deferment of one-time registration fee, lifting ban on purchase of vehicles by government departments and the launch of a scrapping policy for old vehicles. Coupons could be given to those scrapping their vehicles to be redeemed while purchasing a new vehicle, she said. This is similar to the cash for clunkers programme the US launched in 2008 in the wake of the economic crisis.

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