The Centre on Friday came out with a commendable package of announcements in a bid to pep up the economy and improve ease of doing business. This came after weeks of talks with industrialists and economists, who were worried about the way India’s economic indices were moving southwards.
Given the fact that the government’s revenue targets may be difficult to attain, it wisely chose to come up with eye-catching concessions in taxes, which would not prove too costly, such as doing away with an income tax surcharge on foreign portfolio and domestic investors and resolving the vexatious Angel tax affecting start-ups.
The cost of the giveaways is small—just Rs 1,400 crore, however, the psychological impact of the move was clearly visible as rumours of the withdrawal of surcharge spread. The Sensex which had tanked in early trade to a six-month low on Friday, rapidly climbed back to close at 36,701.16 points.
The auto sector had asked for GST relief. While that understandably has not come, the Centre gave it room for celebrations as it doubled the depreciation allowed for new vehicles bought by the end of March next year to 30%, and ruled that there would be no increase in registration fees of vehicles besides ending the ban on government departments buying new vehicles.
State-run banks will also get their promised recapitalisation of Rs 70,000 crore within a tighter time schedule. Despite that, India’s banking system may still not be out of the woods as banks are again being dogged by rising levels of NPAs.
In April-June, NPAs in the banking industry went up to 9.7% of total advances from the previous quarter’s 9.5%.
Also worryingly, once-bitten-twice shy bankers have been reluctant to lend, especially bankers working for state-run banks against some of whom probes have been initiated in the wake of loans turning sour.
Hopefully, with an injection of capital and the government ushering in a more conducive atmosphere for business, lending, which is crucial to economic recovery, will once again pick up.