Through some deft manoeuvring Finance Minister Nirmala Sitharaman has met India Inc half way in offering a fiscal stimulus that would meet some of the concerns of the industry in the wake of a worsening slowdown and yet not jeopardise the economic health of the country through her measures by going too far. While she has sought to improve sentiment and encourage increased buying in some sectors in the course of addressing liquidity concerns, she has steered clear of big ticket measures. There is promise of more steps in small doses to revive and reinvigorate the economy but the first dose does inspire a degree of confidence. If Monday’s trading in the stock markets is any indication, the immediate sentiment is positive with the market having picked up by nearly 800 points.
The slowdown in the economy has been all too evident in recent months but there is now hope of a durable revival which is happy augury. However, a lot would depend on follow-up steps. After the government’s Chief Economic Advisor K Subramanian had caused some heartburn by speaking about India Inc’s tendency to “privatise profits and socialise losses” and warning industry against expecting a sector-specific stimulus package, there was deep apprehension but the new measures have acted as a morale booster. The jury is not out yet on whether the Finance Minister’s measures would pull the country out of morass but it apparently is a step in the right direction which needs to be followed up with well-calibrated reforms laced with caution.
Considering that Ms Sitharaman had little scope for manoeuvre with the country seemingly slipping into recession, she has truly made the task look less daunting. The removal of the surcharge on foreign portfolio investors (FPI) has been welcomed by industry but the measure has in effect cost the government a mere Rs 1,400 crore. The government could have stuck to its guns and made a prestige issue of it. But it was pragmatic and open to change, reversing a major retrograde step which was ill-timed. This flexibility is doubtlessly a good sign. The decision to drop the ‘angel tax’ for start-ups is also a sensible step.
The tax was introduced by the previous Congress Party-led government and treated money raised by fledgling firms as income. While scrapping this tax is welcome and realistic, it is odd that this instrument for harassing private businesses stayed on the statute books for seven years. Indeed, it needed to be scrapped long ago. Also, the deadlines for vehicles powered by fossil fuel engines and those which run on BS IV fuel as also the one-time vehicle registration charges have been pushed back. Indeed, the Finance Minister has accepted major demands of the automobile sector and caved in on even a scrappage policy (where old vehicles can be retired and a concession offered for vehicle purchases against these). This should help lend a measure of stability to the automobile sector which has been facing a major slowdown.
The reforms in the banking sector are timely but inadequate. For banks and finance companies recapitalization of Rs 70,000 crore; banks to offer lower rates for housing and vehicle loans; and a one-time settlement policy for micro, small and medium enterprises (MSMEs) are some other steps in the right direction. But the MSMEs are in doldrums and require greater intervention to repair the damage. If this means some infusion of funds, so be it. Another token measure is additional liquidity support to housing finance companies besides fast tracking of pending GST dues to MSMEs. It is to be hoped that, as the Finance Minister has promised, there would be a series of steps to reinvigorate the slowed-down economy.
With much of the world staring at recession, India has much work to do to avert the possibility of worsening recession in India. If that requires greater governmental intervention the government must not fight shy of it. At the same time, industry must not lend a helping hand and not blow up its plight out of proportion. Sectors which have global dimensions to the slowdown may not be able to do much. But indigenous industry must not look at taking advantage of the situation and earning beyond what is prudent in terms of global factors.