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Last Updated : Nov 12, 2020 07:30 PM IST | Source: Moneycontrol.com

FM Sitharaman's economic package will drive recovery, help make India a manufacturing hub: Experts

The market seems to have already discounted the stimulus package. The benchmark indices corrected half a percent after rising 9.5 percent in last eight consecutive sessions.

The Finance Minister Nirmala Sitharaman on November 12 announced more measures to boost the economic recovery, under the stimulus package Aatmanirbhar 3.0. The FM addressed concerns of several sectors like realty, MSME, exports and agriculture in the package, ahead of Diwali.

And announced Aatmanirbhar Bharat Rozgar Yojana to create new jobs, extended the Emergency Credit Line Guarantee Scheme (ECLGS) till March 31, 2021, and launched credit guarantee support for 26 stressed sectors, production linked incentives (PLI) for 10 more sectors, Rs 65,000 crore fertiliser subsidy to farmers and increased differential to 20 percent from 10 percent only for primary residential property sale until June 2021.

Experts largely gave thumbs up to the stimulus package worth Rs 2.65 lakh crore (trillion) and believe it will give a strong push to the economy to grow in double-digit in FY22 and it is a great move to make India a manufacturing hub in coming years.

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"Today's announcements by the FM addressed concerns over job creation, liquidity, the slowdown in rural economy and infrastructure development," Jaspal Bindra, Executive Chairman at Centrum Group told Moneycontrol.

"The additional allocations under the PM Awas Yojna combined with tax sops for purchase of primary residential units up to Rs 2 crore, significantly reduces the cost of acquiring a new home and provides relief to the real estate sector, which was burdened with high inventory. The ECLGS scheme provides a much-needed liquidity cushion to MSMEs, which were weighed down due slow take off in production cycles as well as loan repayment obligations," he said.

The Central Government announced 12 different measures today including a new Scheme Atmanirbhar Bharat Rozgar Yojana to incentivise the creation of new employment opportunities during the COVID recovery phase, which covers those who lost jobs during March-September 2020 and those drawing salaries of less than Rs 15,000 per month.

The government also extended its Emergency Credit Line Guarantee Scheme till March 31, 2021, and launched credit guarantee support for 26 stressed sectors.

For the revival of the housing sector, the government decided to allocate additional Rs 18,000 crore over Budget estimates under PM Awaas Yojana Urban, while to boost infrastructure and construction, it cut performance security on contracts to 3 percent from 5 percent for ongoing and PSU projects, waived the requirement of earnest money deposit for government tenders and relaxed norms for government contracts until December 31, 2021.

Also, the government decided to increase the differential from 10 percent to 20 percent for the period from the date of the announcement to June 2021 for only primary sale of residential units of value up to Rs 2 crore and also provided I-T relief for developers & homebuyers, which is a big boost to real estate sector, experts feel.

Additionally, the extension of the PLI scheme for another 5 years, sends a strong signal to promote India as an alternate manufacturing hub to China. With the number of COVID cases reducing and the gradual unlocking of the country, these announcements pave the way for a speedy economic recovery".

"It is well thought Diwali gift for developers and buyers," Ramesh Nair, CEO and Country Head, JLL India.

"The Finance Minister has announced no additional tax liability in the hands of both buyers and sellers where the differential in the actual transaction value of the property and circle rate is up to 20 percent. This comes as a significant benefit for both buyers and sellers as it will reduce and rationalise tax outgo to a great extent. Developers will now have the incentive in the form of this revised tax provision to pass on the benefit of lower market prices to buyers without incurring additional tax liability under the erstwhile provisions," he explained.

Additionally, the government also announced an extension of production linked incentive (PLI) scheme for 10 more sectors, to make India a manufacturing hub.

"The extension of the PLI scheme for another 5 years, sends a strong signal to promote India as an alternate manufacturing hub to China. With the number of COVID cases reducing and the gradual un-locking of the country, these announcements pave way for a speedy economic recovery," Jaspal Bindra said.

The market seems to have already discounted the stimulus package. The benchmark indices corrected half a percent after rising 9.5 percent in last eight consecutive sessions.

"Market was hesitant to raise its optimism further as profit booking was triggered across the banking sector post the announcement of the stimulus. The market was waiting for the package, Atmanirbhar Bharat 3.0 was announced today which was good enough and nicely factored in the rising market," Vinod Nair, Head of Research at Geojit Financial services said.

Here is what other analysts said:

Naveen Kulkarni, Chief Investment Officer at Axis Securities

The stimulus package for Atmanirbhar 3.0, announced by FM, was a much-awaited booster shot required to stimulate the economy. We expect that the announcement will help generate jobs, oil the engine of the economy through the extension of ECLGS 1.0 and introduction of ECLGS 2.0 exclusively for the stressed sectors and provide additional investment through PLI and capital expenditure along with relief on performance security and earnest money. The relief to developers and home buyers would stoke the Real Estate industry by clearing the unsold inventory, while the fertilizer subsidy would benefit the farmers in forthcoming Rabi and Kharif crops. Overall, the stimulus package would benefit the economy as a whole, steering it on a recovery path.

Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares & Stock Brokers

Overall, the measures announced are long term positive for both the economy and equity market. Low allocation from budgetary resources makes the announcements positive for the government securities market as well. At the sector level, the announcements are positive for real estate, infrastructure, export-oriented and import-substituting sectors. The announcement today can potentially be negative for the financials if the government and the Reserve Bank of India resorts to moral suasion or more direct measures to nudge bank towards accelerated lending to the pandemic impacted sectors.

Aditi Nayar, Principal Economist at ICRA

The multi-sectoral announcements are expected to boost sentiment and help to bolster the strength of the economic recovery in H2 FY2021. In particular, the measures to boost capital spending and infrastructure, job creation, as well as support the rural farm and non-farm economy, will trigger a virtuous cycle in the economy. While the benefit of some of the measures announced may manifest into a growth boost only over the medium term, they are nonetheless very welcome.

Notwithstanding the robust reform momentum and stimulus announcements so far, government spending contracted on a YoY basis in Q2 FY2021. We hope to see this turnaround in the ongoing quarter, to help solidify the economic revival.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Nov 12, 2020 07:30 pm
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