InvestorQ : What are the major stimulus announcements made by the Finance Minister, Nirmala Sitharaman, and how is it likely to help markets?
Dia Deshpande made post

What are the major stimulus announcements made by the Finance Minister, Nirmala Sitharaman, and how is it likely to help markets?

Ria Jain answered.
3 years ago

In a move intended to boost the stock market sentiments and also the economy, Nirmala Sitharaman announced a slew of measures on Friday. Some of the key measures include.

1. Enhanced surcharge on LTCG and STCG has been withdrawn. However, the enhanced surcharge on salary and other income will continue as announced in the budget. This restores FPIs and domestic investors to the pre-budget status.

2. Section 56 2-B of the Income Tax Act will not be applicable to start-ups. The government has also promised to set up a dedicated cell with the CBDT for the sole purpose of start-ups and this cell can be approached at any point of time.

3. Government has announced plans to launch credit default swap funds. While this is a good measure to hedge against credit defaults, government will be cautious as in 2008; this had resulted in worsening the sub-prime crisis in the US.

4. The government to release Rs.70,000 crore for on-lending by banks and the liquidity support to housing finance companies has been enhanced to Rs.30,000 crore. This is likely to address the short term liquidity problem.

5. NBFCs and other similar organizations will be permitted to use Aadhar based KYC for on-boarding new customers. Government also promised additional support to NBFCs for vehicle loans, home loans, equipment loans etc.

6. Government has commitment to close out all GST refund cases within 30 days and all future GST refund disputes to be resolved in 60 days flat. Banks will also work out a one-time settlement plan for stressed small enterprises.

7. For the auto sector, the government has deferred the one time enhanced registration policy by one year. For the next one year, the government will allow enhanced depreciation at 30% on vehicles as against 15% currently. Scrappage policy is also currently under consideration, although details are yet to be announced.

8. In addition, the government may lift the current ban on government departments buying new cars to give a boot to auto demand. This is likely to give a quantum push to auto demand in the coming quarters.

9. To overcome the stress factor in bank loans, the government and RBI to issue transparent process for one-time settlement of stressed loans. Such settlement needs to happen without impacting the credit rating of the individual substantially.

10. Banks to ensure full passing of rate cuts and have all incremental products on MCLR base. In addition, banks to also launch repo based and repo linked loan products for full transparency and seamless passing of rate cut benefits.

11. Faceless tax scrutiny as promised in the Union Budget to become a reality from Vijaya Dashami onwards. Government also plans to push through pre-filled income tax forms in conjunction with CBDT to simplify and speed up the process further.

12. Government to reduce the hounding of businesses by making physical tax assessment random in nature. Also, violations of CSR (Corporate Social Responsibility) not to be treated as criminal offence but only as civil offence. Centralized system of IT orders will also ensure transparency and remove human intervention to the maximum.

It is not clear if the markets got all that they wanted but it must be appreciated that this is a much needed boost for the business houses. You will have to wait for Monday to see the market reaction but the uncertainty is over for now on the FPI tax front. That should be a major positive move for the market.