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View: Rollback is not reform. It is relief

View: Rollback is not reform. It is relief

View: Rollback is not reform. It is relief
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By Sonal Sachdev  Aug 26, 2019 11:54:24 AM IST (Updated)

With the pullback of such proposals and directives, the finance minister has delivered a soothing touch.

Relief! After stressing out the economy, industry and investors, the government has finally offered a placating balm—rollback. Recent pronouncements by various arms of the establishment on issues like criminal punishment for CSR violations, hiking vehicle registration fees, moving the entire automobile industry in the country to EVs and the proposal to levy surcharge on gains by foreign investors, instituted as trusts, have caused much grief.

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With the pullback of such proposals and directives, the finance minister has delivered a soothing touch. She’s tried to strongly convey that the present Government is pro-reform and supportive of industry, something actions of the recent past belied. This is a positive shift of stance towards enterprise.
Let’s Take A Look At The Measures
The other important development is that the government had decided to ease off on the tax inspector raj—any taxpayer will tell you that the levels of intervention and engagement have scaled new highs under the current regime, perhaps due to pressures of steep collection targets. Things that the government was wont to do, but did very slowly earlier will now, hopefully, be done—like processing GST refunds in a time-bound manner and paying its own overdue bills, estimated at Rs 30,000 crore at present. This again will be a big relief to businesses.
Another significant pronouncement was the “up-front” release of Rs 70,000 crore towards capital for public sector banks. This sounded really good.
But we must note that this was already budgeted and we are set to enter September, so there was not much time to go anyway before the end of the year, and the actual release could still be a few months away.
The finance ministry also showed it could muscle banks into passing on rate cuts. Although here too, the fine print will be helpful. Will the linking of MCLR to repo rate be done prospectively? That will allow banks the option of using as a cushion the rate cuts already undertaken. Also, repo-linked loans for new customers will likely take some time to take-off, as these won’t be risk-free products—interest rates move both ways.
The other measure that rung a positive note was the one-time-settlement option for MSMEs to settle loans via a check-box approach. Given that MSMEs account for about 23 percent of the total credit of over Rs 100 trillion, and the fact that such businesses have been most stressed, the move is not insignificant for MSMEs or lenders. However, here again, what the check boxes are will make all the difference between a successful measure and a failure.
What Really Counted
The only incentivising measure in the entire six-segment presentation was the additional depreciation of 15 percent on all vehicles bought between now and March 31, 2020. This can actually prompt some buying of trucks and buses, besides passenger vehicles and two-wheelers by small business owners and the self-employed who can take credit for the depreciation. It could also trigger some activity from the cab aggregators.
But the most important takeaway for me from the finance minister’s media presentation was that the government is finally awake to the reality of a slowing economy—CNBC-TV18 had flagged the impending slowdown fairly early in the second half of 2018—and they are ready to acknowledge that something needs to be done to put the growth engine back on track. This gives hope that after trying to lift the sentiment using some backtracking and reinforcement of budget commitments—the low hanging fruit—it will finally deliver some real goods in the next two meets.
We live with hope, and a little more belief.
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