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INDIA: Government Stimulus Package Seeks to Reboot Slowing Economy

A government-backed stimulus package is to be introduced as part of moves to tackle the country’s economic slowdown. Among the measures to be adopted, five are seen as having particular significance:

1)  Cancellation of the Enhanced Tax Surcharge on Equity Share Transfer Profit

The enhanced tax surcharge on long- and short-term capital gains arising from the transfer of equity shares, applicable to both Foreign Portfolio Investors (FPIs) and domestic investors, is to be abolished.  The is intended to stem the outflow of capital that has negatively affected both the country’s stock market and currency exchange rates.

2)  Postponing New Vehicle Registration Fee Increase

The planned hike in the one-time registration fee for new vehicles is to be delayed to June 2020. It is hoped that this will boost demand in country’s automotive sector following its 36% sales slump in July this year. It is expected to drive a higher level of auto-parts sales.

3)  Cash Infusion for State-Owned Banks

State-owned banks are to benefit from a cash injection of INR 700 billion (US$10.14 billion). into the country’s state-owned banks. This follows concerns that bad debts and non-performing assets have reduced the lending capacity of such institution. In addition, the private sector is to be encouraged to step up its level of investments in a bid to introduce fresh liquidity to the market.

4)  Cancellation of Start-Up ‘Angel Tax’

Previously considered taxable, the funds received by start-ups in excess of the fair market value of their shares are now exempt from any levy.

5)  Implementation of Randomised Online Tax Return Review System

While moves to reduce incidences of corruption by removing any direct contact between tax payers and adjudicating officials via a randomised online tax return review system had already been announced, the government has now reconfirmed its commitment to the policy.

The moves follow India recording economic growth of just 6.8% in the period 2018-19, its lowest level for five years. The slowdown has been blamed a slump in consumer spending, a decline in investment in the run-up to the country’s general election and a plateauing in the expansion of its services sector. As a consequence, Moody’s, the US credit rating agency, has reduced its forecast of India’s 2019-2020 GDP growth from 6.8% to 6.2%.

Content provided by Picture: HKTDC Research
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