India announces steps to rekindle economic growth

Government is determined to reenergize the country’s slowing growth, said Indian Finance Minister Nirmala Sitharaman while introducing a slew of measures aimed at kick-starting the economy.

Among the steps announced on Friday were a rollback of the enhanced surcharge on Foreign Portfolio Investors (FPI), and on short- and long-term capital gains, as well as removing the angel-tax provision for startups and their investors, all of which the finance minister had introduced in her maiden annual budget presented in July.

Other measures being taken to revive the economy include more robust support for the country’s struggling automobile sector, and an upfront release of Rs700 billion for recapitalization of Public Sector banks, which were earlier planned to be disbursed in a staggered manner over the year.

Indian economy has in recent weeks been losing some of its sheen, partly as a fallout from global events. In its latest World Economic Outlook released in July, the International Monetary Fund (IMF) predicted that global economic growth will be subdued at 3.2 percent, a downward revision of 0.1 percent from the IMFs forecasts made in April.

The trade in tit-for-tat tariffs between the US and China, a Europe muddling through persistent slowdown and Brexit woes, oil price hikes from production cuts implemented by the oil exporters cartel of OPEC, agricultural damages brought on changing weather patterns, and current geo-political tensions have all taken a toll on global growth. The sluggish world economy has also impacted India’s growth story, with the country registering its lowest growth rate in five years in the first quarter of this year.

Clarifying her revival plan and illustrating it through slides, the Indian finance minister said the government has decided to withdraw the surcharge applied to individuals and FPIs earning more than Rs2 crore (Rs20 million) annually. The surcharge has been one of the reasons behind overseas portfolio investors pulling out tens of billions since last month. In addition, the minister said that enhanced surcharge on short- and long-term capital gains arising from transfer of equity shares, would be removed.

In a fillip to job-creating Micro, Small and Medium Enterprises (MSME), Ms. Sitharaman said pending GST refunds would be done within 30 days, while startups — a major avenue for employment and new entrepreneurship — would be exempt from the so-called ‘angel tax’. The government would also provide Rs70,000 crore (Rs700 billion) worth of recapitalisation to public sector banks upfront, instead of spreading it throughout the year to help spur fresh loans to borrowers. She said banks have also agreed to link the revisions in key interest rates to their marginal cost-based lending rates (MCLR), and launch more repo rate-linked loans to customers.

The RBI has so far cut the repo rate — the key interest rate at which it lends short-term funds to commercial banks — by 110 basis points, of which very little has trickled down to borrowers in the form of softer loans.She also stressed that Corporate Social Responsibility (CSR) violations by companies would no longer be treated as a civil liability and not a criminal offence. Under the tighter norms introduced earlier, companies making CSR contributions had to explain where they spent the money.

In a bid to boost the automobile sector struggling with falling sales, and, in general to revive the sector, the finance minister has said the government would lift the ban on its departments buying new or replacing old vehicles. The ban had been instituted as part of austerity measures introduced earlier. In addition to doubling depreciation to 30 percent, the minister also said BS-IV vehicles purchased till 31 March, 2020, before the country switches to lower-emitting BS-VI vehicles, would continue to be operational valid for till their registration period.

Latest data from the government shows that the country’s gross domestic product (GDP) grew 5.8 percent in the first-quarter of the year, while in the financial year 2018-19 that ended on 31 March, the economy grew at 6.8 percent. The finance minister expressed hope that the new measures would improve sentiment and assuage concerns of portfolio investors that could lead to higher inflows of private investment and bring about a revival of economic growth.

-The Times Report