Economic Measures from Indian Government: Early signs of global economic slowdown and slump in the Indian economy has now compelled the government of India to come up in the forefront and bring measures to tackle it.
When the BJP Government made a resounding comeback to the centre on the back of the overwhelming majority, there was an impeccable joy that swept Indian stock markets. Both Nifty and Sensex jumped to record highs due to an undercurrent of expectations of investors for big bang pro-business Economic Measures from Indian Government that would revive a flagging economy. But the positive sentiment did not turn into actuality.
The Finance Minister Nirmala Sitharaman announced a Budget Lite, rolling back recent tax hikes on foreign and domestic equity investors.
The Finance Minister Nirmala Sitharaman announced a Budget Lite, rolling back recent tax hikes on foreign and domestic equity investors. The government is accelerating a capital infusion into PSU banks in an attempt to boost market sentiment and catalyse the stagnating economy.
Economic Measures are catering to one and all – with relief across sectors crisis-hit autos sector, small businesses, and the troubled shadow banking sector. There is a huge focus on lifting consumer sentiment before the Indian festive season which amplifies buying begins.
What facilitated the Economic Measures and from the Indian GovernmenSlt
While announcing the reforms, Finance Minister Nirmala Sitharaman said, “These measures are aimed at boosting growth, we are open to suggestions, we want to speed up growth.” The government has been engaged with multiple business leaders and industry associations since the start of August. Stakeholders have been urging the government to take swift targeted towards boosting demand and investments.
The economic growth rate has slipped to five-year lows in the January-March quarter. Industry experts and economists foresee the move as comprehensive package that 1) improves interest rate; 2) lifts credit inflow and 3) addresses tax-related issues that have plagued consumption and caused a liquidity crunch.
Economic Measures to create a Positive Sentiment
By looking at the global economic slowdown, India could have also come to the shadow of fire, which was already mentioned by many prominent economists. It is the positive attitude that motivated the Government of India to acknowledge the slowdown of the economy. Consequently, it has given a much-anticipated and much-needed stimulus from the Indian Government to the economy.
The pro-activeness by the government in the immediate Rs. 70,000 crore capital infusion through PSB (Public Sector Banks) will lead to Rs. 5 Lakh crores of liquidity in the economy. The expected revenue burden on the government will be Rs. 1400 crores on dropping of contentious surcharge on FPIs (Foreign Portfolio Investors). This economic measure from the Indian Government is expected to benefit the market. Liquidity had been reduced to zero, which is a good sign for the markets.
Under the visionary leadership of Hon. PM Sh. @narendramodi Ji some major transforming measures have been taken to boost economy which are related to facilitating wealth creators, taxation measures, Increasing capital flows andenergising financial markets, infrastructure etc. pic.twitter.com/9oi9SM3WhS— Jagat Prakash Nadda (@JPNadda) August 23, 2019
The government also announced that now CSR (Corporate Social Responsibility) violations will no longer be a criminal offence. It also removed the angel tax for the start-ups and enhanced surcharge withdrawn on both short-term and long-term capital gains from transfer of equity shares.
When there is the inflow of money in the economy, it generates demand/consumption, which boosts industries like manufacturing and infrastructure. This will indirectly generate jobs in the coming future.
Decision to infuse capital in our banking system and ensuring liquidity in the NBFCs along with necessary protection for bankers will help step up credit offtake and private investments. Easier KYC, lower interest rates and faster loan processing will enhance retail consumption.— Amit Shah (@AmitShah) August 24, 2019
Banks to company (B2C) loan recovery never happens or hardly happens until the loan taker has the willingness to pay it back. Ability to pay back the loan comes when the business model is working and earning profits.
Announcement has removed the angel tax for the start-ups and enhanced surcharge withdrawn on both short-term and long-term capital gains.
Right now, in India, only government is performing the capital expenditure (Capex) work, and hardly any private company is involved in Capex except chemical companies, due to factories shut down in China, so manufacturing industries are shifting to India.
Relief to stagnated industrial production
Rs. 30,000 crores inflow in the automobile sector will increase demand. Higher vehicle registration fee has been postponed until June 2020. This shows the pro-activeness of the government to push the core sectors towards revival. Scrapping of the BS-IV vehicles regulation will give impetus to auto buying.
.@ACMAIndia thanks the Hon’ble Finance Minister .@nsitharaman who announced a slew of measures today to boost demand. The industry welcomes the government’s efforts to revive the auto sector. #ACMA pic.twitter.com/EfkVfFY2DT— ACMA India (@ACMAIndia) August 23, 2019
Stricter automobile policy recently enforced hindered automobile demand. The government has rolled back to more practical norms. Automobile companies had a meeting on the 7th regulation by the government on 23rd August. SIAM President said, 30% depreciation on all vehicles can be charged on the vehicle till June 2020.
Rs. 30,000 crores inflow in the automobile sector will increase demand.
Another statement is the restarting of orders for new vehicles to Government departments. Most notable in the automobile sector is ICE and EV will co-exist (Internal Combustion Engine and Electric Vehicle). Linking Repo rates to the interest rate will help in reducing automobile and housing loans rate. Most importantly, the working capital loan will be lower.
GST breath of fresh air for MSMEs
Finance Minister Nirmala Sitharaman announced speedy refunds of GST within 30 days. Further, all GST issues arising from now on will be addressed within 60 days. This is a major relief from corporate sector and consumers and should boost the economy.
Finance Minister Nirmala Sitharaman announced speedy refunds of GST within 30 days. Further, all GST issues arising from now on will be addressed within 60 days.
There will be no GST registration fee until 2020 as people vehemently accused that they were not getting the credit input. Now, MCLR (Marginal Cost of fund-based Lending Rate) rate reduction will be passed on an instant to the customers. This is expected to increase buying in the market and boost the economy. In this current economic slowdown, the MSMEs sector appears to be affected most. Fast-tracking of pending GST dues to MSMEs will give the sector confidence.
Additionally, NHB (National Housing Bank) related funding to NBFCs (Non-Banking Financial Company) will be made to the public to double-check. This was a crucial critique of the government policy which has now been erased. The economic measures from the Indian Government carry an infusion of Rs. 20,000 crores through loans towards the housing sector and consumption.
.@CREDAIPresident, Mr. Satish Magar – “CREDAI views the announcements by FM to revive investment climate & accelerating growth as thoughtful, timely and reassuring” – on the #GovtBoostsEconomy Press Conference by Union Finance Minister @nsitharaman. @FinMinIndia (1/2)— CREDAI National (@CREDAINational) August 23, 2019
This is an important reform. In perhaps the most awaited relief, this will give momentum to the real estate and infrastructure development in the country. Since last few years, this had impacted other sectors influenced by the infra sector.
Acknowledgement and willingness to change
Perhaps the most significant takeaway from FM Sitharaman’s Budget Lite Economic Measures is the acknowledgement and willingness to change shown by the Indian government. It’s in a way redemption with humility, as the message is: Yes, we accept the policies added to the slowdown. And we’re ready to be flexible and roll back the measures that were hampering progress.
The Finance Minister opined that she was confident of meeting the fiscal deficit target of 3.3% of GDP. She based her statement on the trend in revenue collections. The positive market sentiment that will come out of this move is that on the economic measures front, the Indian government is listening. It is the intent of talking to stakeholders and identifying solutions. This is exemplified by the quick and bold steps ranging across the economic sections.