FM’s corrective not a day too soon

Faced with the mood of gloom in the investment community, coupled with industrial workers’ restlessness as job losses mount, Finance Minister Nirmala Sitharaman on Saturday rolled back substantial parts of her first Budget, but in the process may have managed a clutch of measures to boost consumption and market sentiment and simultaneously usher in a few reforms that had taken a back seat in the last few months, and that without straying from the path of fiscal prudence by announcing the much-speculated stimulus package. The announcements have come not a day too soon, and in the wake of predictions that GDP growth would moderate to 6.2-6.9% from the earlier 7.2%. The latest economic package seems aimed at bringing the foreign portfolio investors (FPIs) back to the markets.

Thankfully, Sitharaman has not taken recourse to an enhanced spending or borrowing program as was done by Pranab Mukherjee in 2009 after the global financial crisis had a contagious impact on India, too. Mukherjee’s Rs 1.86 lakh crore economic stimulus package then had derailed the fiscal consolidation plan and it took over five years to stabilise macro-economic numbers. Craftily, Sitharaman used the difficult economic situation to front-end Rs 70,000 crore for recapitalizing banks and provide Rs 20,000 crore to the National Housing Bank to ease the liquidity crunch. Arranging an additional liquidity of Rs 5 lakh crore may be a positive for boosting credit demand. Her decision to roll back enhanced surcharge and tax liability for FPIs and domestic investors could bring life back to the markets that were singed after investors lost wealth over Rs 20 lakh crore.

The finance minister seems to have targeted higher consumer spending by linking retail loans with repo rates, which will lower borrowing rates. The automobile and housing sectors should get a boost with measures like enhanced depreciation rates, postponing registration charges and the scrap policy in the offing. But, automobile makers’ key demand for reduction in GST rates may have to be referred to the GST Council considering the revenue implications. The promise to clear pending GST dues in one month and to issue refunds every two months holds hope for the micro, small and medium enterprises. The commitment to make income tax assessments transparent and to not hound businesses will hopefully build confidence in the industry and businesses. The initial response from the industry, economic analysts and other stakeholders has been positive. We must await the impact over the next several months. Even now, Sitharaman must continue consultations with the industry and trade bodies to devise sector-specific measures and prepare for the impact of the global slowdown.