In a bid to stabilise the faltering economy, Union Finance Minister Nirmala Sitharaman Friday announced removal of the surcharge on capital gains on shares for both foreign and domestic investors, provided an upfront Rs 70,000-crore equity infusion into public sector banks to boost lending, and unveiled measures to push automobile sales.
Surcharge on long and short term capital gains arising from transfer of equity shares, Sitharaman told reporters, has been withdrawn. “The pre-Budget position is restored.” The steps come in the wake of a slide in equity markets and a slowdown in demand that has impacted industries ranging from automobiles to items of daily use such as biscuits and groceries.
While the government refrained from providing an outright fiscal stimulus given the tight fiscal deficit targets, Sitharaman said more policy measures will be taken in the next couple of weeks including for the housing sector. Although the government did not indicate any reduction in GST rates in the automobile sector, it deferred higher registration fee, asked government departments to replace old cars and doubled the depreciation available to 30 per cent on cars.
In another major announcement, Sitharaman said Corporate Social Responsibility (CSR) violation will be treated as a civil offence, and not a criminal offence. These are among a series of policy tweaks announced by the Finance Ministry to “achieve higher economic growth”. The government asserted that ICE (internal combustion engine) vehicles will coexist with EVs (electric vehicles) and there will be no phasing out of ICE vehicles, a fear expressed in certain quarters of the auto industry. Banks will also be asked to pass on the full impact of the interest rate cuts to consumers, Sitharaman said.
In another significant move that will provide immediate liquidity to thousands of companies, the government announced that all pending GST refunds will be paid to Micro, Small and Medium Enterprises within 30 days. In future, all GST refunds shall be paid within 60 days from the date of application.
The expenditure department will review delayed payments from government and Central Public Sector Enterprises. This is expected to released nearly Rs 60,000 crore worth of payments into the economy, easing the working capital crunch in many companies.
Over the last few weeks, Sitharaman had chaired a series of meeting with industry leaders, bank representatives, Ministry officials and PSU chiefs to discuss issues impacting the economy. Last week, she had also held a review meeting with the Prime Minister on the state of the economy. The ongoing slowdown, she told reporters, is not specific to India and is a global issue.
The surcharge of 3 per cent and 7 per cent on those earning between Rs 2 crore and Rs 5 crore, and over Rs 5 crore respectively had been announced as part of the Budget proposals. This had led to different taxation outcomes for FPIs registered as Association of Persons or trusts and companies, even as those registered as companies were spared this surcharge.
Ever since the Budget announcement, markets have been seeing a selloff on most trading days, largely in light of the FPI impact. Friday’s announcement reverses the levy imposed in the Budget. However, tax experts said the surcharge would continue to be levied on business income of the FPIs and unlisted shares.
Sitharaman announced upfront capital infusion of Rs 70,000 crore into public sector banks, a move aimed at boosting lending and improving liquidity situation. This fund infusion was announced in the Budget, but instead of funds being infused in instalments, these will now be provided immediately to the banks, enabling them to lend up to Rs 5 lakh crore more to the economy. The government is working with the banks to ensure that lending rates are lowered in line with the reduction in policy rates by the Reserve Bank of India.
The Ministry also announced additional lending support of Rs 20,000 crore to housing finance companies by the National Housing Bank (NHB). The government also said measures will be taken to deepen the corporate bond market and to ease Know Your Customer (KYC) norms for retail investors in the equities market.
Department of Economic Affairs Secretary Atanu Chakraborty said fiscal stimulus need not necessarily be in the form of doles or direct spending but in terms of structural reforms. “The entire reform thrust of today’s announcement by the Finance Minister has been very structural, not responding to any cyclical requirement, and she has tried to connect the broken pipe between the banks to HFCs, NBFCs and other asset classes,” he said.
The measures, he said, will boost fund flows in equity and debt markets, increasing the velocity of money so that more transactions take place. To mitigate genuine difficulties of startups and their investors, it has been decided to withdraw angel tax provisions for them. The exemption will be applicable to only those startups that are registered with the Department for Promotion of Industry and Internal Trade.
The amendment to the Companies Act, passed earlier this month, introduced harsh penalties including jail term for non-compliance on CSR by listed companies. This had been slammed by industry as a regressive move, especially because in the last five years, the total CSR spend of companies has progressively jumped from 70 per cent to over 90 per cent now, according to data sourced from Prime Database.