There is little doubt that the Indian economy is going through a rough patch, earning the government a great deal of flak. Yet, amid all the criticism, the present dispensation has taken several key initiatives this year to help revive the sagging GDP numbers and dismal job scenario.
On the rural front, perhaps the biggest initiative was the Pradhan Mantri Kisan Samman Nidhi, a scheme announced by Piyush Goyal during the 2019 Interim Union Budget of India on the first of February this year. Under the scheme, farmers holding land up to two hectares will get Rs 6,000 annually, payable in equal installment of Rs 2,000 every four months. Initially, PM Kisan was designed to benefit 120 million farmers, with Uttar Pradesh alone accounting for 21.5 million, or 18 per cent of the beneficiaries.
In order to put more money in the hands of the citizens, thereby boosting consumption, Piyush Goyal introduced substantial relief for individual taxpayers in the interim budget he presented as Finance Minister. Those with an annual taxable income of up to Rs 5 lakh would no longer have to pay income tax. Goyal also raised the standard deduction available to the country's 30 million-string salaried class from Rs 40,000 to Rs 50,000. The flip side is that doubling the threshold exemption limit will increase the burden on the exchequer by Rs 18,500 crore.
The month of August was action packed, with several policy decisions announced by current Finance Minister Nirmala Sitharaman. On August 23, she announced an upfront capital infusion of Rs 70,000 crore into public sector banks in a move aimed at generating additional lending capacity and liquidity in the financial system to the extent of Rs 5 trillion. Of the major banks covered under this initiative, Punjab National Bank is being allocated Rs 16,000 crore, followed by Union Bank, Rs 11,700 crore, Bank of Baroda, Rs 7,000 crore, Canara Bank Rs 6,500 crore and Indian Bank Rs 2,500 crore.
Now let's take a look at what the government did on the FDI front. The Union Cabinet on August 28 allowed 100 per cent foreign investment for single-brand retail. This is more than seven years after the foreign investment cap was removed for the segment to attract marquee foreign brands such as Gucci, Louis Vuitton, Ikea and others into the country. Companies in the single-brand space can also start online retailing without opening brick-and-mortar stores first, something that wasn't allowed earlier. The government also relaxed the rules in coal mining and contract manufacturing, and approved 26 per cent overseas investment in digital media as it looked to boost economic growth from a five-year low.
Two days later, the big bang plan of bank merger kicks in. On August 30, Sitharaman announced the merger of 10 major Public sector banks to form four bigger and stronger government-controlled lenders. This reduced the number of state-owned banks from 27 to 12. The minister said she would ensure there would be no job losses due to the merger. Punjab National Bank will take over Oriental Bank of Commerce and United Bank of India to become the country’s largest lender after SBI. Canara Bank will subsume Syndicate Bank; Andhra Bank and Corporation Bank will merge with Union Bank of India; and Allahabad Bank will become part of Indian Bank. This move was aimed to enhance the banks’ credit capacity and increase their national and global presence. However, bank unions have opposed the move. April 1 has been set as the deadline for merger.
The next big move is the corporation tax cut which brough forth the biggest single-day gain over a decade in the Nifty, and a 1,930-point rise in the Sensex. What did Sitharam do? She declared that all domestic companies were now allowed to pay corporation tax at the rate of 22 per cent instead of 30 per cent. Including cess and surchage, the effective tax rate would work out to 25.17%. This would be subject to the condition that the beneficiary companies do not claim any tax incentives or exemptions. The enhanced surcharge introduced by the Finance Act 2019 shall not apply to capital gains arising on the sale of equity shares in a company/unit of equity-oriented fund or unit of business trust liable for securities transaction tax.
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