Sitharaman Makes Amends For Budget Misses, Addresses Fears Of Slowdown

If Nirmala Sitharaman’s presser today (23 August) tells us one thing, it is that this government is willing to take feedback from India Inc and critics.

But far from giving in to industry’s pressure tactics in order to grab special tax sops for specific sectors, the reliefs announced are mostly logical and calibrated.

The key measures announced to address the slowdown are the following.

First, the auto sector, which has seen a major structural slowdown over the last one year, get policy boosts that do not amount to any direct tax cuts.

The government will buy more vehicles, BS IV vehicles sold till March 2020 will be allowed to ply as long as they remain registered, depreciation rates on vehicles bought this fiscal will be raised, and the one-time registration fee hike has been deferred to mid-2020.

A new scrapping policy is also being announced to accelerate the replacement of old vehicles with new.

These measures make a lot of sense, and do not amount any bowing to industry blackmail demanding duty cuts. One hopes the government helps the industry without making it a special case for tax sops.

Second, the tax surcharge on foreign portfolio investors (FPIs) and long-term and short-term capital gains is gone. This should cheer the markets and enthuse portfolio investors.

The surcharge on domestic taxpayers who earn more than Rs 2 crore stays. It could have been removed too. There is no case for a soak-the-rich approach when India needs all its millionaires to remain here and invest and prosper.

Third, banks will cut rates and pass on the recent repo rate cuts to borrowers. To make this a painless process for banks, the Finance Minister has promised to frontload the Rs 70,000 crore recapitalisation of banks, which will enable them to lend another Rs 5 lakh crore and lower rates.

This is a great move, even if it is only a follow-up to a budget announcement in this regard. Quicker recap will enable banks to write of bad loans faster and bring down rates.

Fourth, micro, small and medium enterprises will be given refunds on their GST payments within 30 days. This will ease their cash situation, and is again a good move. Putting money back in the pockets of small business is vital to get them back on track after the twin shocks of demonetisation and the goods and services tax.

Fifth, Sitharaman has also withdrawn the post-budget changes which threatened to make violations of the corporate social responsibility (CSR) law a penal offence, complete with a jail term. She has now made it clear that shortcomings in this regard will not be penalised.

Sixth, the promise to withdraw the angel tax on start-up promoters and investors has been reiterated, thus re-emphasising that the taxman will not act arbitrarily on this front. The practice of sending follow-up demand notices did not stop even after she made a budget announcement to this effect, but now all doubts on this score should go.

The Finance Minister promised more announcements to revive animal spirits and reverse the sentiment of slowdown gripping some sectors of the economy. As long as the macro and fiscal measures do not focus on favouring one sector or the other, it will be a boon.

A government that listens is always a plus.