Stimulus Package offered by FM – Will it revive the economy?

The Stimulus Package offered by FM – Will it revive the economy?

The only positive signal emanating from yesterday’s press conference by Finance Minister was the admission on the part of the Government that the economy is in deep crisis. The chairman of NITI Ayog, himself had to declare that the state of the economy is in in the worst shape in 70 years.

But how far the yesterday’s rhetoric will help the economy is to be seen and experienced.

The biggest issue in the economy now is ‘less consumption’. Consumers all over the country face liquidity crunch which resulted in low consumption and in turn resulted in stocks piling up with the manufacturers – be it cars or biscuits or white goods or undergarments.

But did the Finance Minister succeed in addressing the issue? Let us take the proposals one by one.

Enhanced surcharge on FPIs has been withdrawn in respect of capital gains:

The Finance Secretary in the press conference while replying to a question said the tax foregone on this account is Rs. 1,400/- crores. In an economy of $ 2.61 trillion (INR 1,82,70,000 crores) what impact Rs. 1,400/- crore will make?

How can the Government give confidence to the investing community around the globe that this will not be introduced in another name in another year?

Just because of the announcement of high surcharge in the budget, crores of investor wealth vanished in a couple of months’ time! And in 2 months’ time, some of the budget proposals reversed. So, is the economic policies are to be fixed by trial and error?

What is we need is a consistent, investor friendly, long term tax policy on which investors and general public have confidence that their financial and tax planning will not go haywire on one fine morning. Did the FM achieved in giving this confidence? I doubt very much.

No angel tax on recognized start-up:

The Finance Secretary in the press conference admitted that the benefit on account of tax savings in the count can not ascertained. But what the business community wanted was not just a tax soap. For example, the CBDT’s notification says Angel tax is not applicable to start ups having turnover upto 25 crores. But the DIPP says it is 100 Crores. Why the two departments of the same government is not able to issue a clarification which is not contradictory to each other?

Industry will be happier to have stable and long-term policies rather than creating more and more confusion by each department

GST Refunds within 60 days:

Why should a FM announce this as a booster dose to economy, when there is already an express provision in the GST law that 90% of the refund claim will be paid in 7 days and balance 10% in 60 days? Is this not a system failure?

It is admission that the benefits available to the assessees as per statute is not given to them. Government should try to change the attitude of the filed formation of the department to be pro-business and till then, all these announcements in a press conference will have zero effect at the ground level.

In the same time, the FM declared in the press conference that she is going to go places and meet the Tax Officials to enlighten them that the targets fixed on them is not unrealistic and is very much achievable! In other words, the pressure to meet targets will be even more with the officers and the effect of the same will land up on the assesses only.

Instead the FM should go and meet the business community and ensure them that there will not be any tax terrorism from the Government and instil confidence in them that they can do business legitimately and legally without any unnecessary intervention from the officers! FM should also promise that the economic policy will be a long term one and they will not tinker with it at the whims and fancies of somebody sitting at the helm.

Still, if the pending refunds of around Rs. 75,000 crores is released into the system in 2 months, as promised, it will be a boost to the economy.

Consumption

Giving additional depreciation on automobiles or lifting of ban on purchase of automobiles by the Government is, of course, a welcome step. But will that solve the problem faced by the economy? Was the Automobile sector only in recession? Will the car purchase by the government or businessmen will rescue the economy? Will a prudent businessman will buy a car just to get 30% depreciation and thus saving 10% on tax?  Will this additional depreciation offer have any impact on the lakhs of customers who are working class or agriculturists whom depreciation has no applicability?

And what about the other sectors? Is there anything for the agricultural sector who is the biggest employment generator? Are there any measures which brings higher disposable income to the common man?

What about construction industry? The so-called GST experiment on construction industry increased the compliance burden on business and higher cost on consumers.  The number of unsold properties in India increased by 8% in top 30 cities in India with 12.76 lakhs properties are remaining unsold. Cochin has 80 month’s inventory over-holding whereas Jaipur has 59 months, Lucknow 55 months and Chennai 72 months. So these builders will realise their investment in 5 to 8 years. This is definitely going to affect the industry. What is Government going to do for this sector, which is the biggest consumer of steel, cement, other materials and most importantly one of the highest employment generators in the country?

FM assures to remove the compliance difficulties

Yes, we are hearing it for long. GST was introduced to meet this end and what is its impact on business now? How the new Company law impacted business? Now Direct Tax Code is on the anvil. What is the assurance that DTC will not follow the footsteps of its predecessors like GST and Companies Act?

The tax law should be in such a way that it should be difficult to manipulate but easy to comply. But now, it is in the reverse order. Big fishes break the net and go scot free where the small and medium taxpayers feel the heat. The bigger corporates have the infrastructure and muscle power for violation or compliance or litigation. Whereas the SME is suffering on this count. The small businessmen and their consultants find little time to do business other than meeting the legal compliance headaches.

Other Measures

The touch ups made on CSR penal provisions or linking Aadhar with NBFC customers will not do any good for the common man as such.

Banking and Finance

Repo rate linked advances is a welcome step. But it has its own disadvantages with RBI changing the Repo rates every quarter. And the latest change was done in 2 months. Further current Repo rate being 5.75%, it has to be seen how much RBI can further cut it.  And, each cut in Repo will affect lakhs of pensioners and like people who is living with the interest on their deposits.

Similarly, 70,000 Crore re-capitalisation of banks and 20,000 crore SME credit support will definitely bring increased money supply into the system. However, it is to be seen that how much funds industry will borrow, where idle capacities are already there.

The emphasis on TReds is also welcome. But the awareness is very low among the SME sector. Government has to ensure that more buyer and financiers are listed in the Platform as well as awareness is created among SMEs to avail this facility.

Most important point, the FM missed is how to leave more disposable income in the hands of common man.

In this count a cut is tax rates would have been ideal and would have lifted the confidence level of the industry. The better course was widening the net, phasing out the exemptions and deductions and reducing the tax rates.

Let us hope the next booster dose will address the concerns of the common man!