An about-face is rarely good, but Finance Minister Nirmala Sitharaman didn't shy away from rolling back measures that upset the industry and investors.
On Friday, when she met media for nearly two hours, Sitharaman came with a bagful of changes and promised to come back with more next week and the week after.
The first to be tossed in the bin was the enhanced surcharge on foreign portfolio and even domestic institutional investors. However, the ministry was ziplipped about its rollout or by when the notification will be issued.
In July, the government had increased surcharge from 15 per cent to 25 per cent on taxable income between Rs 2 crore and Rs 5 crore and from 15 to 37 per cent for income above Rs 5 crore. In no time, the move became a punching bag for bulls, causing severe market unrest as FPIs pulled out over Rs 11,000 crore in July, the highest in 9 months.
The auto sector, which is swiftly worsening from flesh to bone amid the demand slump, got a lift up with the government lifting the ban on purchase of new vehicles by government departments. It means, the government will walk the talk and double up as consumers for automakers to drive demand and in the process resurrect the auto components sector, which is down in the dumps.
And as banks, which have now decided to link interest rates to an external benchmark like repo rate to enable faster transmission of RBI policy rate cuts, retail purchases (and also others like home and consumer durable sales) will likely pick up.
Clearing the air, BS-IV vehicles purchased up to March, 2020 will remain operational for the entire period of registration, while the increase of one-time registration fee, which pushed up on-road car and vehicle prices -- was deferred till June, 2020. Sitharaman also announced an additional 15 per cent depreciation -- taking it to 30 per cent -- on vehicles acquired from now till March 2020, besides a plan to unveil a scrappage policy to boost demand. However, she remained tin-eared on the eagerly-awaited GST rate reduction from 28 to 18 per cent on autos, as it's 'the prerogative of the GST Council.'
Given the mounting frustration due to tax terrorism, allegedly on account of high tax revenue collection targets, Sitharaman clarified that estimates weren't unrealistic at all. She will soon hit the road to interact with tax sleuths to personally request them not to overstretch and in the process inadvertently harass taxpayers. That said, she called time on all the notices issued to tax assesses, which will now be cleared within three months by October, 1.
To end harassment, once and for all, notices will be uploaded through a centralized system. "Respect for wealth creators was the spirit of Budget 2020...wealth creators will be treated with sensitivity," she explained.
For MSMEs, which are suffering from unpaid GST refunds, can expect the bounty in next 30 days, while all future refunds will be cleared in 60 days. Similarly, unpaid dues by government departments -- aggregating Rs 60,000 crore largely by NHAI and PSUs -- too will be cleared shortly. Confusion and anxiety over CSR norms, where erring companies were to face prosecution, are replaced with monetary penalties giving a significant breather to industry.
In response to liquidity concerns, the government will front-load Rs 70,000 crore into public sector banks with immediate effect, which will enable lenders to release Rs 5 lakh cr liquidity into the market. Besides, another Rs 20,000 crore will be chucked at housing finance companies to boost demand.
The FM dismissed concerns of slowdown insisting that even at 5.8 per cent growth the country's economy was indeed growing, not decelerating and she saw no reason to fret and fume about missing the $5 trillion target in next five years.
Strangely, Sitharaman's six-silos-package announced Friday to revive growth neither mentioned stimulus nor laid a roadmap to the much-needed structural reforms. Most of the measures were simply in response to the demands of the industry, but deeper structural issues remained untouched. While the changes could bring back some sense of stability, clearly, until the root and branch level reforms are rolled out, the government may lose it all once again.