Sitharaman said public sector banks will get an immediate recapitalization of ₹70,000 crore to ease the liquidity crisis, which is hurting big and small traders.
The move is expected to generate ₹5 trillion in additional lending and liquidity in the financial system, the finance minister told reporters on Friday.
She added that the government was working towards simplifying the goods and services tax (GST) further, besides providing relief to the ailing auto sector, which is grappling with the worst slump in passenger vehicle sales in nearly two decades, due to the ongoing liquidity crunch, and increased ownership costs.
Sitharaman’s announcements come amid sluggish consumer demand impacting companies across sectors, from biscuits to automobiles.
Analysts and company executives Mint spoke to said that these measures are likely to help ease liquidity in both urban and rural markets, at least in the short run.
“Today’s event was long due and it seems like the government is taking some corrective action (to boost consumption). This should improve working capital for distributors and boost primary sales," said Naveen Trivedi, assistant vice president (institutional equities) at HDFC Securities Ltd. This, in turn, should help non-agricultural sectors and result in a better consumption cycle, volume growth and better sentiments, he added.
Once home and other bank loans get cheaper, the savings will probably move indirectly to appliances and fast-moving consumer goods (FMCG) over time, said Trivedi.
The measures, said Ullas Kamath, joint managing director at Jyothy Laboratories Ltd, will help direct and ease liquidity in the rural markets, where demand has been falling sharply. “This will happen through NBFCs (non-banking financial companies) and other microfinance institutions that will ease up credit into those markets," he added.
Last month, market researcher Nielsen had lowered its 2019 growth forecast for FMCGs to 9-10% from the earlier 11-12%, citing macroeconomic factors such as slowing growth and a deficient monsoon.
Within FMCG, food categories are expected to grow at 10-11%, while personal and home care could grow at 7-8%. Growth slowdown was more pronounced in rural markets, at double the rate of urban, noted Nielsen.
“The slew of measures announced by the finance minister Nirmala Sitharaman would help boost sentiments, improve liquidity and give the economy a much-needed booster shot," said Lalit Malik, chief financial officer of Dabur India Ltd.
Interestingly, Sitharaman talked at length about the problems faced by biscuit makers, referring to concerns highlighted by Parle Products Pvt. Ltd over job losses due to high GST rates and a general slump in demand.
Earlier this week, a top executive of India’s largest biscuit maker told The Economic Times that Parle had sought a reduction in GST rates on biscuits priced at ₹100 per kg or below, adding that the necessary stimulus expected from the government was missing.
On Friday, the finance minister said that if “branded biscuit companies have a problem...if you are told it is GST which has killed them, I would expect the state ministers to speak about it. Because, after all, the GST Council is not just the union government. I would want many of the issues about GST discussed as issues that affect the federal system, states, too."
With inputs from Lata Jha and Bidya Sapam in Mumbai.