Indian Economy

How the Finance Ministry is Attempting to Rejuvenate the Indian Economy

India’s GDP in the first quarter of the current year was at 5.8% and in the second quarter at 5%. The slump in the Indian economy is at an all-time low but the finance ministry is steadily introducing measures to refuel the economy. In the form of various directives, attempts have been made to address specifically the downtrend witnessed in the auto sector, real estate, and FMCG. Infrastructure projects have also seen a liquidity boost which will set in motion capital expenditure and investment.

That said, let’s take a look at some highlights of the major announcements.

Corporate Tax Reduction

The government initiative to lower the corporate tax has brought India in a fair competitive position to attract foreign investment among many Southeast Asian countries including China. The finance ministry is hoping to lure FDI through corporate tax rate of 15% (which is lower than Hong Kong’s 16.5%, formerly lowest in the region), no minimum alternate tax or MAT and has made the whole taxation structure uncomplicated and more transparent.

Now, companies setting up after October 1, 2019, and starting operations before March 1, 2023, will be levied with the new rate of 15% instead of 25% and for the existing companies, the rate has been lowered from 30% to 22%. In addition, the government has also removed the angel tax levied on start-ups.

Linking Loans to REPO Rate

Loans on home and automobiles will become cheaper due to monetary policies helmed by the Reserve Bank of India (RBI) whereby loans will be linked to the repo rate or other external benchmarks. This policy comes in effect from October 1, 2019 and will be available on both new as well as ongoing loans.

This move of linking loans to repo rates effectively brings down the interest rate and also helps banks to earn benefits because of lowered repo rates that changed in 2014. Additionally, the finance ministry hopes this would help the slump in the auto and real estate sector.

Mega Bank Mergers

Another boost for the Indian economy has been devised in the form of mega mergers that will transform 10 public sector banks (PSB) into four major banks. In addition to it, the PSBs will receive a capital infusion of Rs 55,250 crore divided among the four of them.

Fraud Avoidance

That capital frauds and scams are detrimental to the economic growth and morale of the Indian economy are quite evident in the cases involving Nirav Modi, etc. The finance ministry has separated the process of sanctioning and monitoring processes of loans. Furthermore, to avoid cases of frauds, loans involving huge amounts like exceeding Rs 250 crore will be under the scanner of special agencies to be formed by the government.

Festive Cheer for the Real Estate Market

The finance ministry’s attempts have had positive effects on the real estate sector. To begin with, interest deductions on home loans, refuelling of housing finance companies with liquidities from National Housing Bank and others amounting to a total of Rs 50,000 crore and the added bank recapitalizations to the tune of Rs 70,000 crore has boosted the slowing real estate graph.

The festive season sees much property investment decisions and purchases happen. The government measures to revive the economy has boded well for the real estate sector and the reforms can translate to festive profits:

  • The RBI directive which links home loan rates to the repo rates will attract customers to avail the added discount on interests for loans amounting to Rs 45 lakh or less by March 1, 2020. This would in turn help developers to earn benefits of surges in bookings.
  • Real estate developers will be able to turn in more profits by customising deals for the potential customers while they are helped by the liquidity push provided by favourable RERA and GST policies.
  • The government’s affordable housing push can be utilised to launch affordable and modular units which have great demand among millennials.
  • Reforms on the anvil include the creation of a stress fund for stalled projects, RERA supervised financial institutions, etc.

Hope Ahead for the Indian Economy

India’s GDP in the first quarter of the current year was at 5.8% and in the second quarter at 5%. But these measures have garnered hope in the market because the government is setting the basics right. Moreover, the possible trade deals with USA is also expected to help the Indian economy.

Ultimately, how successful these efforts will be in rejuvenating the Indian economy and their impact, in the long run, is open to discussion. It’s time to wait and watch

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