The key takeaway from Finance Minister Nirmala Sitharaman’s many measures announced ‘to boost the economy’ is that the government is seized of the slowing economy, and is willing to roll back some decisions and correct some others, that have had an adverse impact on sentiments.
That’s a big positive in itself, and a step towards regaining trust. While these measures do not mean much either for the markets or the economy gripped in a crisis of confidence, it will shield the government to some extent from the criticism that it is not doing enough to revive consumer confidence.
Doing away with the surcharge on domestic and foreign portfolio investors will perk up stocks on Monday, but going forward the markets will look if the government tackles the real reasons pulling the economy down. Markets are also responding to the trade war between US and China, and its second-round impact on the Indian rupee.
Sitharaman clubbed the 33 measures into five buckets: taxation, banks/ NBFCs/ SMEs, financial markets, infrastructure, and the automotive sector, which has visibly been one of the worst hit leading to many direct and indirect job losses.
Two measures that will go some distance in de-stressing the finances of small and medium enterprises are honouring pending GST refunds within 30 days, and clearing the payment backlog of MSMEs. Over the next three months, Sitharaman has promised to disburse delayed payments to the tune of Rs 60,000 crore. This will give a breather to small firms that are gasping for liquidity.
While Sitharaman reiterated the Prime Minister’s message that the government “respects wealth creators”, she stopped short of doing away with the 3% and 7% surcharge on those earning Rs 2-5 crore and over Rs 5 crore, respectively. For wealth creators to make wealth for themselves still remains a vice.
The decisions relating to banks and non-banking finance companies (NBFCs) are at best a lifeline, but not that would trigger increased lending or credit. Most NBFCs and housing finance companies (HFCs) have sold their highly rated pool of assets following the crunch over the last many months, so the partial credit guarantee would hardly be useful. The increase in NHB refinance limit by 50% to Rs 30,000 crore too will have a marginal impact since the sector needs fresh funding more than refinance.
The hope that upfront recapitalization of public sector banks to the tune of Rs 70,000 crore would help them on-lend to financial firms may be misplaced since most banks have already hit their sectoral exposure towards NBFCs and HFCs.