PM Modi Worried About Job Losses, Asks Nirmala Sitharaman For Detailed Analysis on Economic Slowdown

New Delhi: Prime Minister Narendra Modi has reviewed the state of the economy and discussed likely steps to arrest the current slowdown with union finance minister Nirmala Sitharaman, sources said.

The Prime Minister also reviewed various proposals that might be used to shore up stalling growth. The finalised stimulus package, which might include new policy framework and tax cuts, are likely to be announced in about two weeks' time.

Various sectors are facing a sales downturn and truncated growth due to a combination of factors such as stagnant wages, low job creation, high GST rates and a liquidity crunch.

Sitharaman appraised the PM about her recent meetings with various sectoral representatives, and particularly stressed on the current challenges faced by the auto and realty sectors, highlighting the slowdown in sales and inventory buildup.

Sources said she also shared concerns voiced by foreign portfolio investors on the tax surcharge on the super-rich, which has been blamed for them pulling money out of the India and the fall of the stock markets in the last fortnight.

The Prime Minister is said to be worried about the job cuts, and has asked Sitharaman to come up with a detailed analysis on the reasons for the economic slowdown. Sources said government measures to revive economic activity are likely after more such meetings between Modi and Sitharaman.

The finance ministry has been working on a stimulus package for the industry which may include a slew of financial measures ranging from tax cuts, subsidies and other incentives. Specifically, sources said the package would not only aim to reduce the cost for the industry but would also layout procedures that would provide impetus to ease of doing business.

This could also include measures by the revenue department to ensure honest taxpayers are not harassed and those who commit minor or procedural violations are not subjected to excessive action.

Besides, the measures would try to address the issues of raising consumption by providing more money to the consumers and reducing the prices of consumables by reducing indirect tax rates of a host of items.

Already, a separate package is being looked at for the auto sector whose representatives met Finance Minister Nirmala Sitharaman last week. The industry has sought lower GST rates on automobiles and introduction of a scrappage policy that incentivises new purchase.

This is expected to beat the slowdown that has resulted in passenger car sales plunging 35.95 per cent in July. Various reports have pegged the job cuts in the auto sector at 2.5 lakh already, with another million being at risk.

The collapse of some large NBFCs has been cited as a major factor for the sales downturn as these companies used to provide the bulk of automobile financing.

The government will, however, have to weigh the size of the stimulus package given less than encouraging revenue position and a fiscal deficit that has risen to 3.4 percent in FY19 due to expansionary policies of the previous governments. It has also been kept at a high of 3.3 percent of GDP in FY19-20 as well, meaning this number would again have to be breached to offer a stimulus.

The stimulus is also likely to cover financial markets that have shown big volatility in recent weeks, particularly after the presentation of the Budget on July 5 that raised tax surcharge on FPIs.

While Finance Ministry officials do not indicate what changes could be made, sources said the matter has been discussed internally and certain changes in taxation on share markets could be announced.