After a three-hour meeting with top India Inc leaders on Thursday to deliberate upon the issues plaguing the economy and sagging industrial growth, Finance Minister Nirmala Sitharam is scheduled to meet capital market representatives today, including senior officials of foreign portfolio investors (FPIs), NBFCs and mutual funds. Based on these discussions, the Centre is reportedly planning reforms in crucial sectors over the next few months.
These plans include a public transportation initiative on the lines of the erstwhile National Urban Renewal Mission (JN-NURM) for the automobile sector, a tax overhaul through the direct tax code, which is in the works, scrapping punitive penal provisions for non-compliance with corporate social responsibility (CSR) spending norms and others, the Business Standard reported.
Under the Companies Act, certain classes of profitable companies are required to shell out at least two per cent of their three-year annual average net profit towards CSR activities in a particular financial year and the requirement came into force from April 1, 2014. But amendments to the Act, passed in July, that seeks to strengthen enforcement provisions had India Inc plenty worried. Under the amended Section 135, non-compliance with CSR spending requirement could attract a fine of at least Rs 50,000, going up to Rs 25 lakh. Furthermore, every defaulting officer will be punishable with a jail term of up to three years and/or a fine ranging from Rs 50,000 to Rs 5 lakh.
While asserting that "CSR is no more an act of magnanimity", Corporate Affairs Secretary Injeti Srinivas sought to allay the industry's fears yesterday by saying that the government has absolutely no intention to criminalise any default in CSR spending. "As far as the penal provision is concerned, Section 134 of the Companies Act, 2013 already contains an identical penal provision, which was invoked against defaulting companies since inception. There is nothing new," he told PTI, adding that it was more of a drafting issue and not an additional penal provision being slapped on.
An official who was a part of the industry-FinMin meeting on Thursday told the daily that the government recognises that "reforms are needed across all sectors, be it coal, mines, power, or discoms, and steps will be taken to address these". He added that the "economy needs initiatives, for which the government is making preparations". The meeting was also attended by CII, FICCI and ASSOCHAM representatives.
The next priority for the Modi government is to address the economic slowdown. India's GDP growth, which decelerated to a five-year low of 5.8 per cent in the March quarter, is expected to slip further. The Monetary Policy Committee (MPC) recently lowered its growth forecast to 6.9 per cent from 7 per cent in the June policy. The IMF recently said that India's GDP will now grow respectively at the rate of 7 per cent in 2019, a downward revision of 0.3 per cent reflecting a weaker-than expected outlook for domestic demand. That's a far cry from the double-digit growth that Prime Minister Narendra Modi has been promising.
The industry representatives have asked the government for a 'quick fix' stimulus package to kick-start investment cycle. Piramal Enterprises Chairman Ajay Piramal said that the industry raised several other matters such as reluctance of banks to lend to the industry. "It is not that there was a lack of liquidity in the banks, but lending was not taking place. There is stress on the economy as far as NBFC sector was concerned," he said, adding that the NBFC issue is impacting sectors like auto, home loan, and MSME. After the meeting, the participants said that the government has assured that it will take action soon to revive the industry and push economic growth.
Speculation is rife that the government is also mulling a rollback on the new surcharges for FPIs along with scrapping long-term capital gains (LTCG) tax after the three-year holding period and easing of dividend distribution (DDT) tax. The matter of the super-rich surcharge will likely be taken up by FPI representatives at the meeting with Sithraman and other government officials on Friday.
In Budget 2019 the government decided to increase surcharge from 15 per cent to 25 per cent on taxable income between Rs 2-5 crore, and from 15 per cent to 37 per cent for income above Rs 5 crore. Foreign entities investing in Indian stocks, bonds, and other such instruments that choose to come as a non-corporate entity, such as a trust or Association of Persons (AoPs), are classified as an individual for the purpose of taxation. Around 2,000 of them, or 40 per cent of the total pie, now come under the higher tax rate as they have been investing as a non-corporate entity.
This development seems to have dented foreign investors' interest in India. FPIs pulled out over Rs 2,881 crore from debt and equity segments on August 1 and 2 alone, after withdrawing a net amount of close to Rs 2,986 crore from the capital markets in the preceding month. Alarmed by this turn of events the Centre is now reportedly reconsidering its stand, despite Sitharaman's claims to the contrary in July. A government official told Reuters on Thursday that the government is likely to exempt FPIs from the new surcharges and will either issue a notification soon or an executive order, which could be later submitted to Parliament for approval. Reacting to the above buzz, shares rallied in late trading on Thursday and posted their biggest gain in 11 weeks. The bullish note continued in the morning trade today. Currently Sensex is trading at a rise of 244 points to 37,571 mark and Nifty at 11,112, with a rise of 80 points.
With agency inputs