Ahead of the upcoming festive season, finance minister Nirmala Sitharaman has tried to invoke animal spirits in the economy. In what is touted as ‘Mini Budget’ presented in a 32 slide presentation, Sitharaman announced a slew of measures to revive the economy, which has been not only lackluster but needed the government’s intervention. She tried to set the economy on a growth path and bring back the focus on the roadmap to $5 trillion economy by 2024.
The FM has undone much of the damage caused by her maiden Union Budget by announcing micro measures to stimulate credit off take, consumption and market confidence besides rolling back the contentious surcharge on FPIs and domestic investors. These measures coupled with simplification of the KYC process and reclassification by SEBI for FPIs will pave path for more inflows into capital markets. This is a much needed and a welcome step from her which will lift the spirits of all stakeholders in the economy and market participants.
While the government had announced recapitalization of public sector banks (PSBs) earlier, the timeline was uncertain. This has been front loaded and banks will be provided capital of Rs 70,000 crore upfront, which along with other major announcements for easing crisis in NBFCs should help in boosting credit off take in the economy. Announcement of a credit guarantee scheme of Rs 1 lakh crore for pooled assets of NBFC's and HFC's shall provide relief as well. Similarly, allocating Rs 30,000 crore to NHBs will help affordable housing and realty sector. The decision to pass on rate cuts to the borrowers will be a big relief and will help in reducing cost of capital besides boosting credit growth and consumption. Linking of loan products interest rates to external benchmark will enhance transparency and ensures transmission of the rate cuts to the end users.
Sitharaman has also provided relief to the auto sector in the slow lane and made some announcements which should help in improving auto sales and revive sentiment. Allowing BS IV vehicles registration till March 2020 and increasing vehicle depreciation rate to 30% till then besides deferment of increased registration fees till June 2020 will help in clearance of the inventory at the dealer level. The proposal of lifting ban on purchasing new vehicles and replacement of old ones by government departments and likely announcement of vehicle scrappage policy will help auto companies to utilise their capacity to the optimum in the coming quarters. Announcement of easy and cheaper loans is a master stroke from the government ahead of the festive season. This will trigger a strong rally in both auto and auto ancillaries stocks from the current levels after the recent sell off. The missing piece in the package is a GST reduction, which we hope may come after the GST council meeting scheduled next month.
Proposal of easing of compliance process for GST filing and free flow of refunds ensures the cash strapped MSMEs to recoup their lost ground. The governments’ commitment of the settlement of the pending GST refunds in 30 days shall help the liquidity situation to ease in MSMEs. The government has also promised speedier refunds in the future. In the future, the government will consider a scheme where a company needs to pay GST only on the "value add" in the company, thereby eliminating the need for refunds.
Abolition of angel tax on startups, one-time settlement of existing loans and the measure of withdrawing imprisonment clause for CSR violations will help allay some concerns of industry and wealth creators. Promotion of faceless scrutiny or harassment less taxation regime from Vijaya Dashami can also be considered as a measure to promote festive cheer. In order to promote transparency, government has announced that all the tax notices and orders issued from October 1, 2019 will be issued through a centralized computer system with no human intervention. This automation will help allay fears of harassment by taxmen.
Pumping of Rs 100 lakh crore into infrastructure and constitution of a special task force to expedite the investment and monitoring the process ensures that the government is determined to pursue the path of investment led growth model. Proposal of releasing Rs 30,000 crore of delayed payment to vendors by CPSEs will help in easing liquidity.
Reforms are a continuous process and the momentum has to be maintained for any economy to grow. With the openness for the industry feedback and announcement of this sort of policy measures will help in boosting the industry and market participants’ sentiment. The best part is that government has taken calibrated steps and announced sops for various sectors without deviating from fiscal discipline which will soothe the global investor community. I hope that in the coming weeks, the government will focus not only on implementation of measures announced, but will take few more positive measures.
The government should also provide a timeline for long-term reforms in the area of land, labour, agricultural reforms as well as implementation of the recommendations of the committee on direct taxes. Progress on privatization of PSUs could cement reform credentials and progress on Air India divestment and tackling of other troubled PSUs are other key areas that the government should focus on. The government can also present a plan to monetize land which can help raise resources. An AQR for NBFCs can also help restore confidence as one reason why lending has slowed down is the lack of trust among financial institutions.
Several more steps are required in terms of encouraging the entrepreneurship and create much better environment for ease of doing business, and promote wealth creation. After this much awaited booster doze, hopes of further pro-growth measures in the next meetings will keep the markets buoyant and I expect market to form base around current level. Capital inflows will be witnessed in broader markets among quality mid cap & small cap stocks. At the same time, we may witness rally in the index stocks, which tend to be of interest of FIIs. (The author is CEO - Stock Broking, Karvy)