New Delhi: When the Modi government stormed back to power in May, the stock market was the first to react. Both the Sensex and Nifty scaled lifetime highs in expectation that a stable government will soon result in quick fixes for the economy losing steam, but the first Budget came as no less than a setback.
Markets plunged as soon as Finance Niramla Sitharaman announced the controversial tax surcharge on the Foreign Portfolio Investment (FPIs). Several other measures like amendments to the Companies Act to criminalise breach of corporate social responsibility norms came under sharp criticism from all quarters. Indian markets witnessed one of the most fierce outflow of foreign funds since the global financial crisis in 2008. It not only erased most of the gains in the indices made post polls, but also the once made since January 1. The Gross Domestic Product (GDP) fell further from 5.8 when Prime Minister Narendra Modi took oath, to 5 per cent in June quarter of this year, the worse India has seen in over six years. Much was blamed on the external factors like the trade war and recession- like conditions in Europe and US but the centre of it has been the drying private consumption. Just ahead of release of the GDP numbers, Sitharaman announced the mega-merger of 10 PSU banks into four, where the Punjab National Bank, the Oriental Bank of Commerce and the United Bank to merge become the second-largest PSB, while the Canara Bank and the Syndicate Bank will amalgamate to make the fourth-largest PSU bank entity. That apart, the Union Bank, the Corporation Bank, and the Andhra Bank were proposed to be merged to become the fifth-largest PSU bank and the Indian Bank and the Allahabad Bank merge to be the seventh-largest. Foreign brokerage as well as the domestic ones said that the bank mergers will see an improvement in economies of scale and efficiency of operations over the medium-long term. Earlier, the Finance Minister had announced a slew of measures, which many experts dubbed as the 'mini-budget'. Sitharaman announced the roll back of the surcharge levied on capital gains on shares for both foreign and domestic investors, provided an upfront Rs 70,000 crore equity infusion into PSBs to boost lending, and measures to push automobile sales. Besides, she has also said that more measures are in the pipeline. The biggest concern for the government in its first 100 days has been the dwindling sales of the automobiles. "A million contractual manufacturing jobs are at risk due to the consumption slowdown," Society of Indian Automobile Manufacturers (SIAM) President Rajan Wadhera recently warned. The government announced several measures to rescue the auto sector including lifting ban on purchase of vehicles by government departments, and allowing additional 15 per cent depreciation on vehicles acquired from now till March 2020. It also said that the BS-IV vehicles purchased up to March 2020 will remain operational for the entire period of their registration. Former chief statistician Pronab Sen told IANS that "the growth in agricultural output was below my expectation. Although there are several global headwinds, domestic problems are the reasons for slowdown". Amidst an economy losing steam, weakening currency and auto and manufacturing sales, the government finally took note of the gravity of the situation and a slew of big ticket reforms from tax cuts to bank mergers have started to grab headlines, but India Inc would like to believe that its not too little and too late. (IANS)