Is India geared to withstand the global economic storm?

Dr. Param Shah Tuesday 01st October 2019 08:20 EDT
 

The world economy is facing a slowdown and has impacted India as well. The slowdown of the Indian economy is a result of the overall slowdown of the global economies clubbed with internal factors. The Government of India has been open about the economic slow-down. It has taken cognisance and has taken long-term corrective measures for the economy to stabilise in short run and grow in mid to long term.

The recent economic reforms that have been initiated are said to drive the next phase of economic growth. The reforms in taxation, labour laws and banking will have a medium to long term positive impact on the economy. Whereas the specific sector reforms like that for MSME and Automobile will help these sectors get back to growth.

The announcement by the Finance Minister for tax reforms in the last couple of months have been welcomed positively by the industry and investors. The tax relief for Foreign Portfolio Investment (FPIs) on capital gain has help bring about normalcy in the markets with investors reacting positively to the move. Allaying the concerns of the Startup ecosystem, the Government has now exempted investments made by the domestic investors in companies approved by an inter-ministerial panel from Angel Tax. 

India Inc. has been long demanding reduction in Corporate Tax rates. The reduction of Corporate tax to 22% gave a fillip to the spirits of corporate India and has reinvigorated the manufacturing sector that has been going through a difficult phase of late. India has now become a competitive market in the region. Industry experts have termed this move as atrigger that will lead to a virtuous cycle of investments, growth and higher employment. New domestic companies incorporated on or after Oct 1, 2019 will have an option to pay income tax at 15%. This will give a huge boost to growth of new industry and entrepreneurship in the country.

Another positive move is the announcement of not applying the enhanced rate of surcharge on capital gains arising from sale of equity shares and units of equity funds. This will help stabilise the flow of funds to the capital market.

Along with the tax reforms the Government has also come out with a series of much needed labour reforms. Through a constant consultation with the industry and experts the labour laws are being reviewed and updated. Some of the recent announcements like giving businesses the flexibility in hiring with introduction of fixed term employment, reduction in the contribution to ESIC have been progressive moves. 

On Ease of Doing Business for MSMEs, the Government has made some announcements that will help boost the MSMEs confidence. The move to clear all pending GST refunds to MSMEs within 30 days will help them reduce their working capital cycles. The single consent requirement for setting up a MSME manufacturing unit will make it easier for them to set up units with less hassle. 

The mega bank consolidation plan, liberalisation of FDI guidelines and the stimulus package announced by the Finance Minister last month is comprehensive and address the key pain areas of the economy. 

The signalling through these announcements is loud and clear and underlines the government’s intent to go for growth enhancement in all possible manner. With a mix of both broader measures and sector specific interventions, we hope that the Indian economy and industry will come out of this weak patch soon. A mix of policy decisions and demand dynamics will help the Indian economy withstand the economic storm.

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Disclaimer: The views expressed herein constitute the sole prerogative of the author. They neither imply nor suggest the orientation, views, current thinking or position of FICCI. FICCI is not responsible for the accuracy of any of the information supplied by the author.


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