Finance Minister Nirmala Sitharaman's big-ticket reforms are focused on a demand boost for the revival of the domestic economy. For this, the Finance Ministry has set rolling a series of steps apart from the headline reform of corporate tax rates that put the stock market on steroids. The corporate tax reduction that will entail a revenue loss of Rs 1.45 lakh crore to the government is expected to help Prime Minister Narendra Modi a big splash at the Howdy Modi event after which he would be meeting top executives of 16 big US corporate houses in his foreign direct investments (FDI) campaign.
The major takeaways from the series of announcements Sitharaman made were:
- Credit fairs (loan melas): The public sector banks (PSB) will organise fairs for potential borrowers in 400 districts, boosting liquidity and driving demand in the retail sector across the country. The rural economy survives on retail demand and the increased liquidity will help drive demand and spending helping the rural revival, experts believe.
- NBFC role: Sitharaman's directive to the PSBs to ensure the participation of NBFCs in the credit fairs will help improve the liquidity status of the NBFCs. This is particularly important because the ailing NBFCs have been shown to be behind the economy's illiquidity, according to reports.
- Relief for MSMEs: The injunction on lenders to desist from declaring loans to micro, medium and small enterprises (MSMEs) as non-performing assets (NPAs) during this financial year ending on March 31, 2020, will help reduce morbidity in a vital segment of the economy, according to experts. With over 60 million units, the MSME segment is second only to the agriculture sector in employment generation.
- MSMEs loan restructuring: Banks have been directed to use the special dispensation that the RBI circular, 'MSME sector – Restructuring of Advances, dated January 1, 2019, has made available. "We have also requested that at the branch level banks should make efforts to sit with such stressed asset accounts of MSMEs to get them out of the situation," Sitharaman said. MSMEs that are unable to repay loans within 90 days of the due date will not be stamped with the NPA tag. The facility will be available to MSMEs whose aggregate exposure, including non-fund based facilities, of banks and NBFCs to the borrower, does not exceed Rs 25 crore as on January 1, 2019.
- Spreading liquidity: The Reserve Bank of India (RBI) has said that there is enough liquidity in the economy after its fifth successive repo rate cuts. Sitharaman says the credit fairs will ensure that the liquidity reaches the lowest layer of the economy driving up consumption.
- All types of loans: The credit fairs will be organized as public meetings to be monitored by Minister of State for Finance Anurag Thakur to ensure that the needy get the loans.
The reform announcements ahead of Prime Minister Modi's meetings in the US will serve to send a loud message to industrialists across the world to consider India as a friendly investment destination, especially when the US-China trade wars are threatening FDI flow to China.