In a bid to stabilise the faltering economy, Union Finance Minister Nirmala Sitharaman Friday announced removal of the surcharge on capital gains on shares for both foreign and domestic investors, provided an upfront Rs 70,000-crore equity infusion into public sector banks to boost lending, and unveiled measures to push automobile sales. Hope now India’s economy will soon be out of deep mess. This additional relief for FPIs is part of government’s efforts to boost investor sentiment. Now a question comes why there was wrong forecast from the ministry in the budget?
There were literally, 48 days of turbulence in the stock market, the Government on Friday came with its first booster shot for the economy, rolling back the higher super-rich surcharge levied on capital gains in equity market for domestic and foreign investors.
Market value of BSE-listed companies eroded over ₹15 lakh crore since 5 July as disappointment over the Union Budget, tepid corporate earnings, weak auto sales, and the ongoing credit crunch have weighed on investor sentiment. Sensex and Nifty have fallen over 10% during this period.
In another major announcement, Sitharaman said,Corporate Social Responsibility(CSR) violation will be treated as a civil offence, and not a criminal offence. These are among a series of policy tweaks announced by the Finance Ministry to “achieve higher economic growth”. The government asserted that ICE (internal combustion engine) vehicles will coexist with EVs (electric vehicles) and there will be no phasing out of ICE vehicles, a fear expressed in certain quarters of the auto industry. Banks will also be asked to pass on the full impact of the interest rate cuts to consumers, Sitharaman said.
In another significant move that will provide immediate liquidity to thousands of companies, the government announced that all pending GST refunds will be paid to Micro, Small and Medium Enterprises within 30 days. In future, all GST refunds shall be paid within 60 days from the date of application.
Department of Economic Affairs Secretary Atanu Chakraborty said fiscal stimulus need not necessarily be in the form of doles or direct spending but in terms of structural reforms. “The entire reform thrust of today’s announcement by the Finance Minister has been very structural, not responding to any cyclical requirement, and she has tried to connect the broken pipe between the banks to HFCs, NBFCs and other asset classes,” he said.
The measures, he said, will boost fund flows in equity and debt markets, increasing the velocity of money so that more transactions take place. To mitigate genuine difficulties of startups and their investors, it has been decided to withdraw angel tax provisions for them. The exemption will be applicable to only those startups that are registered with the Department for Promotion of Industry and Internal Trade.
The announcements shows that, the government is listening to industry’s problems. These will bring positive sentiment in the short term. But, the biggest takeaway is that there are a number of measures to achieve, which will make long-term workings of the economy and various branches of the economy far easier than what it is today,” RC Bhargava, Chairman, Maruti Suzuki India.
S S Kim, Managing Director and CEO, Hyundai Motor India Ltd, said: “We welcome the government’s measures to boost economy and the automobile sector in particular. We are optimistic that this move will boost customer sentiment in the current market scenario and encourage customers’ acquisition of cars in the coming festival season”.
The clear message by the Finance Minister that BS IV vehicles that are purchased till March 31, 2020 will all remain operational for their entire period of registration has cleared the air on this subject and consumers will no longer hesitate to purchase BS IV vehicles,” said Rajan Wadhera, President Society of Indian Automobile Manufacturers.
While the increased depreciation from 15 per cent to 30 per cent and deferment of increased registration fees till June 2020 will have a positive impact, moderation of GST base rate from 28 per cent to 18 per cent for all categories as being requested by the auto industry for sometime now would have been the real demand stimulant,” said Rohit Suri, President and Managing Director, Jaguar Land Rover India Limited.
The government has withdrawn the additional surcharge on capital gains, providing major relief to foreign portfolio investors (FPI). The move may help reverse some of the foreign investment outflows seen after the contentious measure was announced in the budget and will likely strengthen the rupee.
India will exempt foreign investors from the super-rich tax. An additional surcharge on domestic investors will also be withdrawn. The government may lose about ₹1,400 crore from the move,” said Nirmala Sitharaman, finance minister.
It also announced relief for India Inc by clarifying that violations of Corporate Social Responsibility (CSR)-related provisions will not be a criminal offence. Since, 40 per cent of the FPIs fall under the non-corporate category, it affected market sentiment and the FPIs took out ₹12,419 crore in July and ₹12,105 crore this month (till August 23).
In a bid to give to comfort to job-creating Micro, Small and Medium Enterprises (MSME), Sitharaman said, pending GST refunds would be done within 30 days, while start-ups, a major avenue for employment and new entrepreneurship, would be exempt from so-called ‘Angel Tax’
She also announced an immediate infusion of ₹70,000 crore into banks to boost their liquidity and lending capacity of banks by ₹5 lakh crore while housing finance companies would get up to ₹30,000 crore with a view to reviving the real estate sector.
Lastly, she has said for the auto sector, she doubled depreciation to 30 per cent and lifted the ban on government departments buying new vehicles. BS-IV vehicles purchased till March 31, 2020, before the country switches to lower-emitting BS-VI vehicles, would continue to be operational valid for till their registration period.
Lastly, the FM said, hopes for the revenue target will able to meet, she further said, that two more big announcements will come soon.