dfa-12-nov

Daily Financial News Analysis – 12th Nov’20 – Free PDF Download

 

Production-Linked Incentives

  • The Cabinet gave in-principle approval to Production-Linked Incentives (PLIs) worth ₹1.45 lakh crore for 10 sectors including white goods, automobiles, pharmaceuticals and textiles, seeking to attract big-ticket investment.
  • Of this, the most is for automobiles and auto components at ₹57,042 crore, followed by battery manufacturing at ₹18,100 crore, in order to boost electric vehicle manufacturing.
  • Under the scheme, ₹15,000 crore has been earmarked for pharmaceuticals and ₹12,195 crore for telecom and networking products.
  • Other sectors covered are textiles (₹10,800 crore), food (₹10,900 crore), high efficiency solar PV modules (₹4,500 crore), specialty steel (₹6,322 crore), air conditioners and LEDs (₹6,238 crore), and electronic/technology products (₹5,000 crore).
  • Under the scheme, cash subsidy is provided to companies as a percentage of incremental sales from the base year, which is the year the scheme comes into effect from.
  • Percentage of incentive is worked out in accordance with the disadvantage faced by the sector and varies sector to sector.
  • The PLI scheme is already operational for mobile phone manufacturing, active pharmaceutical ingredients (APIs) and medical devices with an outlay of ₹51,000 crore.
  • The latest announcement will take the total amount of incentives under the PLI programme to nearly ₹2 lakh crore.
  • In the case of mobiles, the starting incentive rate is 6%, going down to 4% in the fifth and final year.
  • The government has not fixed a cap on the number of companies that can apply for incentives, Sitharaman said.
  • Savings, if any, from one approved sector can be utilised to fund another approved sector by the empowered group of secretaries.
  • Any new sector for PLI will require fresh Cabinet approval.

Wage Subsidy

  • The government is discussing a fiscal stimulus that would include a wage subsidy programme spread over two years as well as a further boost to infrastructure spending.
  • The entire package could be as high as 3.5% of GDP, or about ₹7 lakh crore.
  • The wage subsidy benefit is expected to be made available to firms that have goods and services tax (GST) registration.
  • The idea is to create demand by supplementing incomes and generating more jobs at the bottom of the pyramid in order to spur demand.

Stressed Sectors

  • The government is finalising a fresh set of stimulus measures for key stressed sectors such as hospitality, retail, aviation and tourism that have been hit hard by the Covid-19 pandemic.
  • The key element of the package, which could be announced soon, is a credit guarantee scheme on the lines of the one offered to the micro, small and medium enterprises (MSME) sector.
  • It may also have some targeted measures to spur spending in these sectors, ensuring that they get debt relief coupled with a demand push.
  • The package being worked out could also include support for employment generation by taking over the burden of provident fund contributions for new hires.
  • Collateral-free loans will be offered to entities from the services sector to aid them during the recovery period.

Airlines

  • The government allowed airlines to increase the total number of flights to up to 70% of the pre-Covid-19 levels from up to 60% permitted earlier.
  • This is the fourth revision by the government, permitting airlines to expand capacity, since flights restarted in May after the easing of lockdown restrictions.
  • Directorate General of Civil Aviation allowed airlines to increase the total number of domestic flights to up to 70% – airlines were operating more than 2,500 domestic flights daily before the lockdown imposed from March 25 halted operations.
  • The government expects the total number of daily departures to reach pre-Covid levels by the end of this year, which seems unlikely.
  • Airlines have, however, said they are seeing a surge in demand due to the festive season as well as people travelling for business returning to planes.
  • In the current month, airlines have seen an increase in travel during long weekends, besides the festive season uptick.

RBI on Economy

  • The Reserve Bank of India (RBI) has said the economy may return to positive growth during the October-December quarter itself, ahead by a quarter of the forecast provided in the monetary policy resolution last month, as the growth momentum in September has sustained in October as well.
  • But it also warned that sustained inflation, the risk of the second wave of the virus and stress in the household and corporate sectors could play spoilsport.
  • Incoming data for October have brightened prospects and stirred up consumer and business confidence.
  • With the momentum of September having been sustained, there is optimism that the revival of economic activity is stronger than the mere satiation of pent-up demand released by the unlocks and the rebuilding of inventories.
  • RBI’s article, the first in the series, tracks a host of indicators of various facets of the economy that have become available for the month of October to continue its ongoing assessment of this cusp on which the Indian economy is poised in Q3 2020-21.

From tax terrorism to tax transparency

  • Prime Minister Narendra Modi on Wednesday underscored his government’s tax reforms such as faceless appeals and dispute redressal mechanism to say India has moved from tax terrorism to tax transparency.
  • Modi said his government has attempted to bridge the trust deficit between the taxpayer and tax collector while also easing the rules and procedures.
  • Reduction in peak rate of corporate tax to 22 per cent from 30 per cent, going in for appeals only in case of a higher threshold of the disputed tax amount, removal of dividend distribution tax and quick refunds have brought transparency and simplified the tax structure, he said.
  • “The shift from tax terrorism to tax transparency has been possible because the government is following the approach of ‘reform, perform and transform’,” Modi said.
  • He further said the government has brought about reforms in rules, procedures and using technology to a big extent.
  • Today income upto Rs 5 lakh is exempt from taxes and the benefit of this is available to the youth who fall in the lower middle class bracket.
  • In this year’s Budget, we have provided the optional tax regime which is more simple and saves the taxpayer from unnecessary hassle and cost.
  • He said corporate tax was cut for existing companies to generate employment opportunities, while tax rate for new manufacturing units was lowered to 15 per cent to help the country become ‘aatmanirbhar’ (self-reliant).
  • To increase investment in India’s equity market, the dividend distribution tax has also been removed, he said.
  • Tax officers while collecting taxes should ensure that common people do not face any trouble.
  • Also, people should feel the impact of the ultimate usage of the tax money collected.
  • Stating that wealth creators should be honoured, he said easing their problems will help in aiding the growth of the economy.

 

 

 

Download Free PDF