CONCEPT – THE 2019 ECONOMIC INCENTIVES BY MODI 2.0

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 CONCEPT – THE 2019 ECONOMIC INCENTIVES BY MODI 2.0

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• July 2019 Budget : Finance Minister Nirmala Sitharaman presented the Union Budget in July, and the market’s response was either tepid, or downright pessimistic. The proposals were not positive from a fiscal stimulus perspective. Hence, at least three packages have been announced after the Budget.
• FIRST PACKAGE – AUGUST 2019 – Focus on Auto Sector, NBFCs & HFCs, and Income Tax rules

1. AUTO SECTOR
1. To allow an additional 15 per cent depreciation, taking it to 30 per cent, on all vehicles acquired from now till March 2020.
2. To address slowdown in the auto sector, ban on purchase of vehicles by government departments was lifted.
3. BS-IV vehicles purchased up to March 2020 will remain operational for the entire period of regn.
4. A new Scrapage policy to boost demand will be brought soon.
5. Both electric vehicles (EVs) and Internal Combustion Vehicles (ICV) will continue to be registered, and revision of one-time registration fees deferred till June 2020.
2. NBFCs & HFCs
1. Govt. assured additional liquidity support of ₹20,000 crore by the National Housing Bank, taking the total to 30,000 crore. 
2. Govt. will provide a one-time six-month partial credit guarantee to public sector banks for the first loss of up to 10% for the purchase of high-rated assets upto Rs.1 trillion.
3. INCOME TAX RULES
1. Govt. withdrew the enhanced surcharge on foreign investors. 
2. No angel tax would be imposed on startups and their investors  if registered with the DPIIT.  
3. From October 1, all income-tax notices will be sent only via a centralised computer system, and will be disposed off within three months. 
4. Govt. will release upfront the Rs 70,000 crore of funds under bank recap plan. That will push a liquidity of upto Rs.5 trillion into the system.

• SECOND PACKAGE – AUGUST 2019 – Banks’ mergers

1. Govt. announced multiple mergers of 10 public sector banks (PSBs) into 4.
2. First is the merger of Punjab National Bank, Oriental Bank of Commerce and United Bank with business of 7.95 trillion to make India’s second-largest bank.
3. The other will be between Canara Bank and Syndicate Bank, which will make the fourth-largest bank, with 15.2 trillion business.
4. Also, Union Bank will be merged with Andhra Bank and Corporation Bank to build India’s fifth-largest public sector bank with 14.59 trillion in business.
5. Finally, Indian Bank will be merged with Allahabad Bank to make India’s seventh-largest PSB with a business of 8.08 trillion.
6. The earlier merger of Bank of Baroda, Vijaya Bank and Dena Bank led to enhanced customization and rationalization of operations without any retrenchment. 
7. Goal is to present this as a “reform” as big banks of global scale are being formed.

• THIRD PACKAGE – SEPTEMBER 2019 – Exports and Housing sector
• EXPORTS SECTOR

1. Govt. is setting up the Scheme for Remission of Duties or Taxes on Export Product (RoDTEP), which will replace the Merchandise Exports from India Scheme (MEIS).
2. The existing dispensation in textiles of MEIS and the old ROSL (Rebate of State Levies) will continue up to December 31, 2019.
3. The previous MEIS and the new RoDTEP are designed to incentivise exports by giving them rewards to offset the duties they pay to export their products.
4. The new scheme will incentivise exporters even more.
5. Textiles and all other sectors which currently enjoy incentives up to 2% over MEIS will transit into RoDTEP from January 1, 2020.  In effect, RoDTEP will more than adequately incentivise exporters than existing schemes put together. The revenue foregone is projected at up to ₹50,000 crore per year.
6. In another move aimed at freeing up the working capital of exporters, a fully electronic refund module for the quick and automated refund of input tax credits that will become operational.
7. To increase bank credit to exporters, the Export Credit Guarantee Corporation (ECGC) will expand the scope of its Export Credit Insurance Scheme to provide a higher insurance cover to banks that are lending working capital for exports.
8. Higher insurance cover – Banks are covered for 60% of what they lend to exporters for working capital, and this will be increased to 90%. Credit flow to exporters has come down by 35%. This move is expected to increase export credit by about 4,000 crore in the first year and 5,000 crore in the second year.

• THIRD PACKAGE – SEPTEMBER 2019 – Exports and Housing sector
• HOUSING SECTOR

1. For the housing sector, government is setting up a special fund that would provide last-mile funding for housing projects that are not categorised as non-performing assets and are not undergoing National Company Law Tribunal proceedings.
2. The objective is to focus on construction of unfinished units. The government, on the lines of the National Investment and Infrastructure Fund, can contribute to the fund while the rest of the investors would be LIC and other institutions and private capital from banks, sovereign funds, etc.
3. The government’s contribution to the fund would be 10,000 crore and the other investors would contribute “roughly the same amount”. The fund is to be professionally run with experts from housing and banking sectors.a

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