Centre unveils stimulus package to spur growth

Finance minister announces withdrawal of super-rich surcharge on FPIs

Finance minister Nirmala Sitharaman on Friday announced measures to revive economic growth and markets including the withdrawal of higher taxes for foreign portfolio investors (FPIs) and said it would release funds for bank recapitalisation upfront.

The finance ministry had increased the effective tax rate on individuals with taxable annual income of above ~2 crore by about 3%, and for those earning above ~5 crore by 7%.

Foreign portfolio investors had become the unintended target of the higher surcharge on super rich. FPIs pulled out over $1 billion in August from the Indian markets.

The government hopes the new measures will improve the sentiment leading to higher private investment and assuage concerns of portfolio investors, to revive economic growth of Asia’s third largest economy.

News of the finance minister’s press conference snapped stocks out of its three-session falling streak on expectations that Sitharaman could announce withdrawal of the surcharge and steps to support the sagging economy.

“In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (no. 2) Act, 2019 on long

and short term capital gains arising from transfer of equity shares/units referred to in section 111A and 112A respectively,” Sitharaman told reporters at a briefing on measures for boosting economic growth.

The minister said that the surcharge increase is removed for both domestic and foreign investors and the pre-budget position had been restored.

Sitharaman also announced upfront capital infusion of ~70,000 crore into public sector banks, a move aimed at boosting lending and improving liquidity situation.

The move is expected to generate an additional lending and liquidity in the financial system to the tune of ~5 lakh crore, she said at the press conference in New Delhi.

Sitharaman, who announced a bouquet of steps to make it easier, simpler and cheaper for businesses to operate, had started the media briefing by underscoring that the Indian economy was doing much better than other economies, both among developed countries as well as emerging markets.

She also pledged that the government would continue introducing reforms.

She said the global GDP was projected at 3.2% and India is placed in a better position than many developed countries like the US and Germany.

The weak demand globally points to lowering of consumption.

Her announcements came as Moody’s Investors Service lowered India’s GDP growth forecast for the calendar year 2019 to 6.2% from its previous estimate of

6.8%.

Sitharaman said that the government was committed to the reform agenda and has several steps for ease of doing business, including labour reforms.

In a major relief to the refunds of micro, small and medium enterprises (MSME) sector facing liquidity shortage, the government on Friday announced that all their pending Goods and Services Tax (GST) refunds will be paid within 30 days. In future, dues will be cleared in 60 days.

Allaying industry concerns, the finance minister said violations of Corporate Social Responsibility (CSR) norms under the Companies Act will be treated only as a civil liability and not as a criminal offence.

The industry had expressed concerns over penal provisions for non-compliance with CSR in the amended Companies Act, 2013. In a bid to address slowdown in the automotive sector, Sitharaman announced the ban on purchase of vehicles by government departments will be lifted and an additional 15% depreciation on vehicles acquired from now till March 2020 will be allowed.

Also, BS-IV vehicles purchased up to March 2020 will remain operational for the entire period of registration, she said.

Leaders from the industry had asked government for a stimulus package, including reduction of GST on vehicles, for the sector that has been hit by a slump in sales. The passenger vehicles (PVs) segment has been the worst hit, with sales continuing to decline for almost a year now.