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Enhanced surcharge on FPIs has been withdrawn in respect of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 corporate 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!
