To address economic slowdown across a number of sectors, the government will start a series of consultations with financial market stakeholders, as well as industry leaders from automobile, real estate and MSME sectors, in order to amend policies and announce changes aimed at promoting growth. Top Finance Ministry officials will also meet leading foreign portfolio investors (FPIs) over a number of Budget issues including the surcharge on income tax that have led to outflows from equity markets and a sharp plunge in share prices.
Addressing reporters after a review meeting with heads of public and private sector banks Monday, Finance Minister Nirmala Sitharaman said the Centre is open to hear out concerns of FPIs and other sector specific issues that are affecting the broader economy.
The government will come out with a “considered response after hearing out all the stakeholders,” she said, indicating that the government may announce policy changes aimed at addressing sector specific issues and promoting growth.
The Centre also reviewed credit growth of public sector banks and issue of transmission of lower policy rates into reduction in lending rates of banks.
“I have made it absolutely clear that if there are FPIs who want to tell me something about, I am quite open to hearing out what they have to say. We have not just left it at that. The list of meetings that the Finance Secretary (Rajiv Kumar) spoke about, in that, the stock market and investor representatives are also meeting us,” she said.
Moreover, Department of Economic Affairs Secretary Atanu Chakraborty would hold discussions with representatives of FPIs to address their concerns.
In the Budget 2019-20, the government raised surcharge on income tax from 15 per cent to 25 per cent on taxable income between Rs 2 crore and Rs 5 crore, and from 15 per cent to 37 per cent for income above Rs 5 crore. It would also be applicable for FPIs operating as trusts or as association of persons.
Resolving tax surcharge issue a prime concern
In the Budget 2019-20, the government raised surcharge on income tax for taxable income between Rs 2 crore and Rs 5 crore, and for income above Rs 5 crore. This is being seen as a major reason for relentless outflow of funds from Indian financial markets. Hearing out concerns of FPIs is among the measures that will help address issues that are affecting the broader economy.
This is being seen as the key reason for relentless outflow of funds from Indian financial markets since tabling of the Budget on July 5. Equity markets have been under pressure and it has been led by FPI outflows.
While they pulled out a net of Rs 12,418 crore in July following the Budget announcements, they have pulled out another Rs 7,538 crore in August taking the net outflow between July and August at Rs 19,956 crore.
On another issue resulting in negative sentiment in equity market, the Securities and Exchange Board of India (Sebi) will hold consultations with market players on Budget proposal of raising minimum public shareholding norm to 35 per cent from 25 per cent. Any final view on its roll out will be taken after these consultations.
“On 25 per cent to 35 per cent shareholding, I think the Sebi had come out saying they are initiating consultation to hear the views much before a position is taken and this mention was there in Budget speech not as a part of decision which has been made already,” the FM said. The government is yet to initiate the proposal.
A higher public shareholding requirement is seen as increasing supply of shares in the market, thereby depressing prices.
On a question related to sovereign bonds, Sitharaman said “nothing more has been done” apart from the announcement in the Budget as the Ministry was busy in dealing with three bills, including amendment to the Insolvency and Bankruptcy Code (IBC). The government has announced it would start raising a part of its gross borrowing programme from external markets in foreign currencies.