When the Narendra Modi administration was re-elected with a bigger majority in May this year, the stock market was the first to react.
Both the Bombay Stock Exchange Sensitive Index aka Sensex and the National Stock Exchange’s Nifty 50 scaled lifetime highs in the hope that a strong and stable government would result in quick fixes for an economy that was already losing steam.
But the first Budget came as a shock. Markets plunged as soon as Finance Minister Nirmala Sitharaman announced her controversial tax surcharge on annual income above Rs2 crore (about $286,000).
While this was designed to milk the country’s rich, it also spooked those bringing Foreign Portfolio Investment (FPI) into the stock markets.
Several other measures like amendments to the Companies Act to criminalize breach of corporate social responsibility norms came in for sharp criticism from all quarters.
These measures resulted in the markets witnessing the fiercest outflow of foreign funds since the global financial crisis of 2008. It not only erased most of the gains the indices had made after the polls, but also the ones made since Jan 1, 2019.
Meanwhile, the Gross Domestic Product (GDP) fell further from 5.8% when Prime Minister Modi took oath for his second term in office to 5% in the quarter ended June, the worst India has seen in over six years.
Much of the slowdown has been attributed to external factors like the worsening trade war between the US and China and recessionary conditions in Europe and the US, but at the centre of it has been drying private consumption in India itself, which has a vast domestic market.
Just ahead of the release of the GDP numbers, Nirmala announced the mega-merger of 10 government-owned banks into four. Foreign and domestic brokerages said the mergers would improve economies of scale and efficiency of operations over the medium term.
Earlier, the finance minister also announced a slew of measures which many experts dubbed a ‘mini-budget’. She announced the rollback of the surcharge levied on capital gains on shares for both foreign and domestic investors, provided an upfront equity infusion of Rs 70,000 crore into government banks to boost lending, and proposed measures to push automobile sales.
She also promised that more measures are in the pipeline.
The biggest concern for the government in its first 100 days has been the dwindling sales of 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 help the sector, including lifting a ban on the purchase of vehicles by government departments and allowing an additional 15% depreciation on vehicles acquired from now till March 2020.
It also said that BS-IV vehicles purchased up to March 2020 will remain operational for the entire period of their registration. From April 1, 2020, only vehicles meeting BS-VI emission norms can be manufactured and sold in the country.
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, a weakening currency, and auto and manufacturing sales slowing, 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. India Inc only hopes now that it is not a case of too little too late.