Battling a six-year low economic growth and a 45-year high unemployment rate, the government has announced a slew of measures in a bid to arrest the slowdown. Union Finance Minister Nirmala Sitharaman, who also announced the Union Budget, has held four press briefings aimed at reviving growth in various sectors of the economy.
The government announced measures in four dosages which include a special window for real estate, export incentives, bank consolidation and sops for micro, small and medium enterprises (MSMEs) and the automobile sector. The fourth booster to give a leg-up to the economy, that was unveiled on September 20, is regarding the government’s announcement to cut the corporate tax rate.
Here is a comprehensive summary of the measures announced by the government with an aim to give a fillip to the slowing economy, since the budget was tabled.
Rollback of the enhanced surcharge for foreign portfolio investors (FPIs)
The first set of announcements was made on August 23 that included rollback of the enhanced surcharge imposed on foreign portfolio and domestic investors in Budget 2019-20. Surcharge on long and short term capital gains arising from the transfer of equity shares has been withdrawn, she had said in a press briefing last month.
The surcharge was increased by 3 per cent and 7 per cent on those earning between Rs 2 crore and Rs 5 crore and over Rs 5 crore, respectively, as part of the Budget proposals announced by the Finance Minister on July 5.
Sitharaman had in her maiden Budget raised the surcharge on income tax paid by super-rich inpiduals.
The decision taken in the Budget to levy enhanced surcharge had spooked the stock markets. Following the increase in surcharge in the Budget, the effective income tax rate for inpiduals with taxable income of Rs 2-5 crore went up to 39 per cent from 35.88 per cent and for those above Rs 5 crore to 42.7 per cent.
Consolidation of 10 public sector banks (PSBs) into four
On August 30, Sitharaman announced the merging of a number of Public Sector Banks (PSB) in order to revive and revitalise the banking sector with the objective of achieving the $5-trillion economy target. The number of PSBs will come down to 12 from 27 following the move that is aimed at making state-owned lenders global sized banks.
In what is one of the biggest mergers since the integration of SBI with five associate banks, Sitharamam announced the merger of Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank of India with a business of Rs 17.95 lakh crore and a network of 11,437 branches, making it the second-largest PSB in the country.
Announcing a positive growth in the banking system, the finance minister had stressed that the gross bad loans of public sector banks have come down to Rs 7.9 lakh crore from Rs 8.65 lakh crore at December-end 2018.
Announcing measures to strengthen the banking system, the finance minister said, We need to lay a strong foundation for finance sector by strengthening the banks and giving them a good governance module. In the last several years, we have made sure that several banking reforms are undertaken.
Measures to boost housing, facilitate home buyers
On September 14, FM Sitharaman announced a special window to provide last-mile funding for the completion of ongoing housing projects which are not NPAs or facing bankruptcy proceedings under NCLT. The objective of the special window is to focus on the completion of affordable and middle-income housing projects.
While unveiling the third set of stimulus measures for the economy, Sitharaman said the government will contribute Rs 10,000 crore for the special window and roughly the same amount is expected from outside investors.
She also said the interest rate on housing building advance will be lowered. Government servants contribute to a major component of demand for houses. This will encourage more government servants to buy new houses, she said. The government also announced that the External commercial borrowing (ECB) guidelines will be relaxed to help housing developers obtain overseas funds.
Under the government’s move, the guidelines will be relaxed to facilitate the financing of homebuyers who are eligible under Pradhan Mantri Awas Yojna, in consultation with the central bank.
Step to cut corporate tax
In the fourth tranche unveiled on September 20, Finance Minister Nirmala Sitharaman announced a slew of measures to encourage manufacturing and boost investment and development. The Centre slashed corporate tax rates for companies by almost 10 per cent to 25.17 per cent (inclusive of surcharge and cess) to bring them at par with Asian rivals such as China and South Korea.
The move will cost the exchequer Rs 1.45 lakh crore annually. The government also announced rollback back of higher surcharge on capital gains on sale of equity announced in Budget for inpiduals, HUFs, Association of Persons (trusts).
Further, those firms who choose to continue with pre-amended tax rates will also see their Minimum Alternate Tax (MAT) come down to 15% from 18.5% currently. At present, the tax rate for companies with annual sales over Rs 400 crore is 30% (exclusive of surcharge and cess).
The reduction in corporate tax rate for domestic companies would be effective from April 1 this year, while the change for new domestic companies would apply for those which get incorporated on or after October 1 and start producing on or before March 31, 2023. The provisions effecting these changes have been inserted in the Income-tax Act through an ordinance.
The new effective tax rate inclusive of surcharge and cess for domestic companies would be 25.17% and for new domestic manufacturing companies would be 17.01%. These rates would be applicable to those companies who forego the current exemptions and incentives. Also, MAT will not apply to such companies.
(With ENS inputs)