Measures to boost the growth of Indian economy

Recently, Moody's Investors Service cut India's GDP growth forecast for 2019 calendar year to 6.2 per cent from the earlier prediction of 6.8 per cent. The GDP growth rate plummeted to 5.8 per cent in the fourth quarter of 2018-19 from 8.2 per cent in 2016-17 and is expected to dip further to 5.6 per cent in the first quarter of 2019-20. What, however, has come as relief is the attempt, by the government and the announcement of a new set of measures to push the growth rate.

Union Finance Minister Nirmala Sitharaman announced a host of measures to boost the country's economy and promised to keep making reforms. A month and a half after presenting her maiden Union Budget, she heeded to the requests from different sectors and came up with solutions, which many in the sector are describing as innovative and forward looking.

In keeping with the promise made during the Union budget, the finance minister said that the government would infuse Rs 70,000 crore as capital in state-run banks immediately to ease credit flows. The lending sector, which has been demanding increased liquidity, is likely to benefit from this. The infusion of capital is expected to generate as much as Rs 5 lakh crore in extra liquidity.

The finance minister also announced additional liquidity support of Rs 20,000 crore to housing finance companies (HFCs) , increasing it to Rs.30,000 crore in order to boost home loan sector. She also said that Partial Credit Guarantee scheme for purchase of pooled assets of NBFC/HFCs to up to Rs 1 lakh crore which will be tracked at the highest level in every bank.

Banks have also been asked to link their lending rates with the Reserve Bank of India’s policy rate so that the central bank’s rate cuts can result in commercial banks lowering their lending rates.

For NBFCs, it means, the ability to work closely with banks to deliver last-mile credit from banks to consumers and the ability to lend in a big way.

In July, our finance minister had announced that the government will provide a one-time 6-month partial guarantee of Rs 1 lakh crore to state-run banks for purchasing consolidated high-rated pooled assets of financially-sound NBFCs and this will cover their first loss of up to 10 percent in order to boost liquidity access for the sector.

Here is a look at the other highlights:

• She withdrew the “angel tax" that was hampering the startups dependent on angel-investor funds.

• She rolled back the surcharge increase on the earnings of foreign portfolio investors (FPI) and domestic institutions after FPIs began pulling out billions of dollars (estimated Rs 23,000 crores) from the equity. These provisions aim to reinstate confidence among investors even if it means that the government has to let go Rs 14,000 crores. In July, the government had increased surcharge from 15% to 25% on taxable income between INR 2 crores and INR 5 crores, and from 15% to 37% for income above Rs 5 crores.

• The provision that could have sent company executives to jail for not meeting corporate social responsibility (CSR) targets has been removed.

• To resurrect the automobile sector, the increase in one-time registration fees has been postponed, ban on the purchase of vehicles by government departments has been lifted and an additional 15% depreciation on all vehicles acquired from now till March 31, 2020, has been announced.

• Emphasis has also been laid on helping a supply chain emerge for the local manufacture of electric vehicles.

• To check “tax terrorism”, from 1st October, all notices, summons, orders issued by IT department will be issued through a centralized computer system and will contain a unique document identification (DIN) number.

These policy changes are likely to have a significant impact in bringing economic stability and provide impetus towards overall growth especially by pushing investment rate. Now, all eyes would be on the next set of announcements as the government has promised more measures in the coming weeks. For the time being, it is expected that these corrective measures will spread cheer among the business owners and customers.