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FinMin has pitched a stimulus plan to PMO & this is how it looks like

Policy interventions to revive the economy is possible only with PMO’s blessing, it said.

ETMarkets.com|
Updated: Aug 23, 2019, 12.09 PM IST
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Stimulus to pump-prime economy? Think again, reforms can do better
FPIs would now be classified into two categories instead of three.
To revive the economy and market, the Finance Ministry is pitching with the Prime Minister's Office (PMO) for policy interventions in four areas – capital markets, auto, real estate and SMEs, ETNOW reported.

Policy interventions to revive economy is possible only with PMO’s blessing, it said.

Benchmark equity indices Sensex and Nifty pared day’s losses after the report early Friday. The 30-share Sensex gained 57 points, or 0.16 per cent, at 36,530 at around 10.56 am (IST), while Nifty rose 28 points, or 0.26 per cent, to 10,769.


While specifics of the measures being proposed to pump-prime the economy were not known, the FinMin presentation to PMO is said to have taken note of the fact that the auto industry has been lobbying for a reduction in GST rates on cars to 18 per cent from 28 per cent to revive demand.


For capital markets, the FinMin is understood to have suggested a withdrawal of the income-tax surcharge on FPIs as it was ‘unintended’. It also has suggested some tweaking of long-term capital gains tax to woo back investors.

Prime Minister Narendra Modi is currently out of the country till August 26 and, therefore, no decision on policy interventions is likely before his return. “The FM will be on a roadshow meeting with SMEs till the first week of September and policy intervention can be expected only after that,” ETNOW reported.

On Thursday, Chief Economic Adviser (CEA) Krishnamurthy Subramanian virtually ruled out a major stimulus package for the economy, saying “profit is private, losses are public” is anathema to market economic.

He said sunrise and sunset phases for any industry are usual and expecting the government to support an industry during a sunset phase can be morally hazardous.

Echoing similar views, former Finance Secretary Subhash Chandra Garg said the reduction in interest rate and availability of credit to private sector are better tools rather than providing fiscal stimulus, which can crowd out money from the market and affect transmission of interest rate cuts.

The stock market has been under severe selling pressure ever since Finance Minister Nirmala Sitharaman’s July 5 Budget, where she proposed a surcharge on higher income-tax groups, which also hit FPIs registered as trusts and association of persons (AOPs).

As a result, market capitalisation of BSE-listed firms has plunged to Rs 137 lakh crore on August 22 from Rs 151 lakh crore on July 5.

On Wednesday, Sebi relaxed compliance requirements for foreign portfolio investors trying to provide them some relief. The market watchdog simplified know your client (KYC) requirements and also broadbased their categorisation.

FPIs would now be classified into two categories instead of three, while the requirements for issuance and subscription of offshore derivative instruments (ODIs) would be rationalised.

Further, FPIs would be permitted for carry out off-market transfer of securities which are unlisted, suspended or illiquid, to a domestic or foreign investor, Sebi said in a release.



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