BackOpinion | Sitharaman’s booster shot for the economy
The government’s package of measures aimed at strengthening the economy should lift the mood among various economic players. If it works as planned, an uptick may not be far off
PremiumThere is relief for the economy, at last. On Friday, finance minister Nirmala Sitharaman announced a slew of measures aimed at accelerating growth. These are spread across a variety of sectors, which shows an attempt to address a wide range of pain points. More importantly, downward trends that threatened to get worse may get arrested and reversed if key sectors respond as expected. Among other things, Sitharaman said that the government would infuse ₹70,000 crore as capital in state-run banks right away to ease credit flows, withdraw an “angel tax" that threatened to snuff out startups dependent on angel-investor funds, set up an organization to enhance loan support to the infrastructure and housing sectors, and ensure that housing finance companies are not short of money. Unclogging channels of liquidity was a matter of urgency, but other significant moves include the roll back of a surcharge increase on the earnings of foreign portfolio investors and domestic institutions, and the dropping of a needlessly harsh provision that could have sent company executives to prison for failing to meet corporate social responsibility targets. Taken together, the package promises to restore confidence among investors, many of whom had been pulling money out of India after the budget of 5 July, as well as wealth creators, who would be pleased to see the finance ministry act on Prime Minister Narendra Modi’s 15 August assurance of the high esteem in which they are held.
Crucially, the automobile sector, which is the backbone of India’s manufacturing sector, has been paid considerable attention. An increase in one-time registration fees has been deferred, a depreciation benefit on vehicles has been doubled, a ban on the purchase of vehicles by government departments has been lifted, and renewed emphasis has been laid on helping a supply chain emerge for the local manufacture of electric vehicles. These should ease pressure on the profitability of automobile companies and boost demand as the government resumes replacing old vehicles with new ones. In addition, what should help revive sales is the clarification that all vehicles compliant with BS-IV norms—on sale until the 31 March deadline—would remain legally road-worthy. Uncertainty on this had kept many customers away. That New Delhi didn’t extend the sales deadline for these vehicles would disappoint companies that are under pressure to clear old stocks, though.
Another major problem that the government has sought to address is that of the central bank’s rate cuts failing to result in commercial banks lowering their lending rates. Banks shall henceforth link their lending rates with the Reserve Bank of India’s policy rate. The net effect should be cheaper loans. A lighter interest burden could spur both consumer demand and investment. Other promises such as quick goods and services tax refunds, simplified tax return procedures and faceless income tax assessments are likely to spread some cheer. On the whole, Sitharaman’s booster shot for the economy should improve sentiment. This in itself could impact key variables that power economic growth, such as India’s long-languishing investment rate. If the outlook on this front begins to look up, much else would begin to improve. An uptick in growth, in turn, would generate employment and put more money in people’s hands.
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