PM holds meet with Sitharaman and officials to weigh booster dose options

Prime Minister (PM) Narendra Modi on Thursday met Finance Minister Nirmala Sitharaman and officials of her ministry to find solutions to the economic slowdown that has eroded wealth and hit jobs. Sources said the government might soon provide a broad stimulus package or a sector-specific booster dose.  

There might also be some relief to foreign portfolio investors from the super-rich surcharge, announced in the Budget.

But, a cut in the goods and services tax (GST) on motor vehicles — one of the worst-hit sectors — was unlikely, said sources, adding that the government believed the sector was going through a cyclical downturn.

“The Centre will assess the potential revenue loss from any cut in the GST rate for four- and two-wheelers before proposing it to the GST Council,” said a government source. The current GST rate is 28 per cent.

The meeting on Thursday took place hours after Modi addressed the nation from the historical Red Fort in Delhi on the occasion of Independence Day. Officials aware of the deliberations said plans were being firmed up for any stimulus package or sector-specific measures. “The broad consensus was that steps will be taken by the government to arrest the slowdown in the economy.  The contours are being drawn up now,” said an official. 

Sitharaman and the officials also briefed the PM about the series of meetings they had with various sectors last week. 

Sitharaman, Minister of State for Finance Anurag Thakur and finance ministry officials had held meetings with bankers, micro, medium and small enterprises, automobile sector representatives, industry bodies, investors and market participants, and real estate companies and home owners.

In the immediate term, the finance ministry is looking for ways to support foreign portfolio investors who are affected by the super-rich surcharge. An announcement on this is expected soon, officials said. 

These steps could include exempting or ring-fencing of FPIs, which are structured as trusts or associations of person — a step which requires only a circular or reducing the impact of the tax by grandfathering income generated by FPIs for a few months. Such a move will reduce the impact of the tax. Another option is not taxing FPIs on their move from the trust structure to a company structure.

The sources said there were two meetings on Thursday. 

First, Sitharaman and senior bureaucrats of the finance ministry met Modi and briefed him on the reasons for the slowdown in the economy and its long-term impact.

The sectors discussed were automobiles, fast-moving consumer goods, steel, textiles, and overall exports. Only officials talked in this meeting and Modi did not give his views. He wanted to understand the issues, said the sources. 

A second meeting was held between Principal Secretary Nripendra Mishra and senior North Block officials. More details were discussed on the road ahead and the steps to be taken.

“Regarding the auto sector, the view in the government is that it is a cyclical slowdown. Fiscally, it is a tough year. We have to look at the implications of any GST rate cut,” an official said, adding that something akin to a “cost-benefit” analysis of a rate cut will be done by the revenue department.

With sales of cars, tractors and two-wheelers declining to a 19-year low, reports suggest 300 dealerships have been shut down and around 230,000 jobs have been axed in the sector. The Society of Indian Automobile Manufacturers (SIAM) says about 1 million jobs have been hit in the auto-component manufacturing industry.

Direct tax collections have grown by only 9.7 per cent in the first quarter of the current fiscal year, against the Budget projection of 18.6 per cent over the actual figures of 2018-19. 

Growth in GST collection till July, too, has been only 9 per cent as against 18 per cent estimated in the Union Budget.

India’s economic growth has slowed to 6.8 per cent in 2018-19 — the slowest pace since 2014-15, consumer confidence is waning and foreign direct investment has reached plateau. 

International trade and currency war is aggravating the problem. The Reserve Bank of India Governor Shaktikanta Das had earlier this month said the slowdown is more cyclical than structural and the growth is expected to review by the fourth quarter.