Indian industry welcomes government’s Diwali economic stimulus package

Indian industry welcomed a raft of economic stimulus measures announced by the Finance Minister Nirmala Santhanam on Thursday that are aimed at reducing imports and establishing the nation as a global hub for manufacturing.

The boost was provided through a 12-point programme that included providing incentives to farmers through a massive fertiliser subsidy, fiscal incentives for housing and infrastructure as well as incentivising job creation among the private sector.

The government said it would take on the private sector’s burden of contribution towards employees provident fund (old age savings) for a period of two years and for those drawing wages of 15,000 rupees or below.

The measures followed a day after the government announced a production linked incentive scheme for as many as ten sectors including packaged food, speciality steel, pharmaceuticals and automobiles and auto components.

“We saw a powerful multi-sectoral boost coming in from the government today. The clear focus on housing, infrastructure and construction shows that the government wants to leverage the huge multiplier impact these sectors have to rev up the economy that is already showing multiple signs of recovery,” said Sangita Reddy, president of the Federation of Indian Chambers of Commerce and Industry (FICCI).

She welcomed the Diwali bonanza “that will lift growth, employment, exports and make India part of the global value chains” as well as “strong and self-reliant.”

Among the measures, the minister also announced emergency credit for 16 tressed services sectors will be provided  without any collateral, where the government will act as guarantor.

The government also announced fiscal incentives for boosting exports, providing more credit to infrastructure and employment generation programs for the rural poor including road construction in villages as well as other work under Mahatma Gandhi National Rural Employment Guarantee Act.

Road to recovery

“It is heartening to note that despite fiscal constraints, the government chose to hasten the recovery process by spending an additional Rs 2.65 lakh crore, thus taking the cumulative fiscal stimulus (till date) to Rs 17.2 lakh crore or 9 percent of GDP,” said Uday Kotak, President, Confederation of Indian Industry CII.

The decision to ease the financial burden of 26 sectors will help a large number of employees employed by the industry, he said.

“Government’s continuous support and the new announcements under the Aatmanirbhar Bharat Yojana 3.0 will make the road to recovery post-pandemic stronger and facilitate and incentivise job creation, and provide much relief and impetus to housing and infrastructure sector,” said Dr. Niranjan Hiranandani, President of the Associated Chambers of Commerce and Industry (ASSOCHAM).

“Strong growth and an increase in demand have propelled the economy on a rebound,” he said.

On Wednesday, the Reserve bank of India in a state of the economy report advanced its outlook for positive growth, saying that it will occur in the third quarter instead of a previous forecast of the fourth quarter of the fiscal year.

Hiranandani, who is also a representative of the real estate sector, particularly welcomed the additional outlay of Rs 180 billion rupees for the PM Awas Yojana (Urban Housing Scheme for the poor) over and above the budget estimate .

He said that a tax relief for developers and first-time homebuyers and an increase in  the differential between circle rate and agreement value in real estate income tax to 20 percent from 10 percent would boost housing sales.

“For homebuyers, it is a clear added financial benefit to round off the existing offers and discounts. Additionally, the consequential relief up to 20% to buyers of these units under Section 56(2)(x) of the IT Act for the said period will definitely boost demand, especially in the affordable and mid segments,” said Arun Chitnis, spokesman for Anarock Property Consultants..

“For developers, this move will help clear unsold stock.” he added. Following the pandemic, housing and infrastructure construction had virtually ground to a halt amid a shortage of workers as well as plummeting demand. 

“The slew of incentives approved by the government under the Production Linked Investment Scheme will provide the necessary impetus to sectors like manufacturing of batteries, electronic components and automotive parts,”  said  Jay Cheema, Partner, Cyril Amarchand Mangaldas.

“This move will provide the much needed momentum to the growth of the industry and commerce and generation of employment, thereby ensuring two pronged benefits; early revival of economy and attaining Atmanirbharta.” 

Biman Mukherji is a columnist and consulting editor at Indoasiancommodities.com. He has worked for international news organisations such as Reuters, The Wall Street Journal as well as for newspapers like The Times of India. He can be reached at biman.mukherji@indoasiancommodities.in

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