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Insights into Editorial: Sentiment booster: On govt response to slowdown

Insights into Editorial: Sentiment booster: On govt response to slowdown


The government came out on the front foot to try to boost private sector sentiments, with Finance Minister announcing a slew of measures to reduce the burden on the sector, including withdrawing the controversial surcharge on Foreign Portfolio Investors (FPIs) and reiterating the Prime Minister’s statement that the government “respects all wealth creators”.

In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by the Finance Act (No 2) Act 2019 on long- and short-term capital gains arising from the transfer of equity shares.

The government also decided to front-load the Rs.70,000 crore of capital infusion in public sector banks that was announced in the Budget, a move aimed at increasing private investment by facilitating greater credit disbursal by the banks.

According to the government, this Rs.70,000 crore will lead to about Rs.5 lakh crore of fresh liquidity that can be loaned out.


Comprehensive package of Measures:

India’s GDP growth plummeted to nearly five-year low of 5.8 per cent in January-March and it is widely believed that the growth might not have picked up in the first quarter of the current fiscal also.

Therefore, the announced measures will boost economy:

  • They addressed the growth slowdown concerns; free up funds for investment and spending by banks, housing finance companies and MSMEs; and importantly, undo some controversial proposals, in the budget and outside it, which were affecting sentiment in the markets and the corporate sector.
  • Importantly, these have all been done without any significant financial burden on the government.
  • Some of the measures promote the ease of doing business and even the ease of living for ordinary citizens.
  • The auto sector’s biggest demand that of reduction in GST rate may not have been conceded, but Ms. Sitharaman has given the sector enough to cheer about.
  • The accelerated depreciation of 15% (in addition to the existing 15%) for all vehicles acquired till March 31, 2020 and the deferment of the proposed increase in registration fee for new vehicles to June 2020 are positive measures that will boost sentiment and, it is to be hoped, translate into demand.
  • As the festive season sets in, banks will have more space to increase their lending consequent to the upfront funding of Rs.70,000 crore (announced in the budget) that they will get from the government towards recapitalisation.
  • This, together with the strong push for repo rate linked loan products, is likely to benefit consumers borrowing to buy new homes, vehicles and durables.
  • The roll-back of the capital gains tax imposed in the budget on foreign portfolio investors.
  • The withdrawal of angel tax on start-ups and the promise that non-compliance with corporate social responsibility (CSR) norms will be decriminalised show a government that is willing to listen to feedback from the ground.
  • The assurance that all pending GST refunds to MSMEs will be paid within 30 days and going forward such refunds will be made within 60 days is a great relief for the sector. This will ease the cash flows of MSMEs who often work with stretched finances.


Consistent growth will Stabilise Economy:

With the global environment in high flux, India remains well-poised for staying at the top of the growth ladder.

The growth momentum across sectors such as infrastructure, automotive, consumer durables, and others will see huge impetus. Kudos for this well-thought economic stimulus.

In a bid to give fillip to job-creating Micro, Small and Medium Enterprises (MSME), Sitharaman said pending GST refunds would be done within 30 days, while start-ups – a major avenue for employment and new entrepreneurship – would be exempt from so-called ‘angel tax’.

Creation of a shelf of infrastructure projects and announcement of a long-term financial institution have wide positive ramifications for the economy.

For Housing Finance Companies (HFCs) the National Housing Bank will provide an additional line of funding of Rs 200 billion over the Rs 100 billion to HFCs. This will provide additional liquidity to HFCs at reasonable rates, the government had said.

To bolster consumption, the government also said that banks have decided to cut interest rates, a move that would lead to lower equated-monthly instalments for home, automobile and other loans.

Easing of FPI norms could give a boost to the overseas investment in the country which is an important source of economic growth and development in India.

These changed norms will make the regulatory framework more investor-friendly for FPIs and a multidimensional approach is needed to resolve the concerns of FPIs and reasons of outflows.



Some of the smaller steps can go a long way. Expediting delayed payments by government departments and public sector units is alone expected to release a massive Rs.60,000 crore into the economy.

There are several measures there which will boost consumer sentiment and it will boost investor sentiment in any case.

The comprehensive measures removing enhanced surcharge on FPIs (foreign portfolio investors) and DIs (domestic investors), securing transmission of lower repo rates, addressing delayed payments and ensuring that bank officials are confident about lending are strategically targeted towards raising investments.