How India’s Economy Is Recovering From COVID-19: A Snapshot View

Written by: India Briefing, Dezan Shira & Associates

Posted: 5th August 2020 08:56

India’s economy is showing signs of recovering after withstanding some of the worst impacts of COVID-19, including prolonged nationwide shutdowns.

As India enters Unlock 3 from August 1, which will see more of the country reopening after lockdown, we discuss some of the earliest indicators, ‘green shoots,’ of economic revival and why foreign investors should find it opportune to look at the Indian market more seriously.

India has started easing restrictions on economic activities and businesses are now getting back on track and showing signs of recovery.

The pandemic has cast its shadow across various economic activities with major disruptions in global production, supply chains, and trade.

To address these concerns in such challenging times, the government of India has announced several measures not only to ensure business continuity and sectoral revival but also to attract foreign direct investments into the country and encourage the global community to choose India as their preferred destination for investments.

Measures to ease burden on businesses

Some of the key immediate measures announced by the government are mentioned below.

Reduction in corporate tax rate

Corporate income tax rates have been reduced from 25 percent to 22 percent for all existing domestic companies (including subsidiaries) from Financial Year 2019-20 if they do not avail any specified exemption or incentive.

Further, the corporate income tax rate for companies setting up new manufacturing units before March 31, 2023 has been significantly reduced to 15 percent.

Individual taxpayer relief

The Finance Act, 2019 has exempted an individual taxpayer with taxable income up to INR 500,000 (~US$6,757) by providing 100 percent tax rebate. Also, to provide relief to the salaried taxpayers, the Act has enhanced the standard deduction from INR 40,000 (~ US$541) to INR 50,000 (~ US$676).

Changes in taxing dividend income

With effect from April 1, 2020, the Finance Act, 2020 has removed the Dividend Distribution Tax (DDT) to increase the attractiveness of the Indian equity market and provide relief to a large class of investors. The dividend income shall be taxed only in the hands of the recipients at their applicable rate. Prior to the change, companies distributing dividends carried the burden of paying DDT at 15 percent plus surcharge and cess. Moreover, foreign investors can now claim relief under the Double Taxation Avoidance Agreements (DTAA) between their country and India.

Extension of trade incentive schemes

The Foreign Trade Policy that was valid till March 31, 2020 has been extended to March 31, 2021 and the benefit of duty drawback/credit scripts has been extended for one year. The benefits under all the Export Promotion Schemes (except Services Export from India Scheme (SEIS)) and other schemes, available as on date, will continue to be available for another 12 months.

Import-export tax relief

Similarly, exemption from payment of Goods and Service Tax (GST) and compensation cess on the imports made under Advance/EPCG Authorizations and by export-oriented undertakings, etc. has been extended by one year.

The validity period for making imports under various duty-free import authorizations (AA/DFIA/EPCG) expiring between February 2020 to July 31, 2020 has been allowed automatic extension for another six months from the date of expiry, without requirement of obtaining such endorsement on these authorizations.

Relaxations in compliance

In order to facilitate the companies registered in India to make a fresh start on a clean slate, the Ministry of Corporate Affairs has decided to take certain measures for the benefit of all companies by way of the Companies Fresh Start Scheme notified for permitting delayed filings under the Companies Act, 2013. Pursuant to the scheme, penalties and late filing fee for various compliances have been relaxed or waived.

Further relaxations have been provided to companies and Limited Liability Partnerships (LLPs) from mandatory statutory requirements the under Companies Act, 2013 and LLP Act, 2008. Few of them are as follows:

Liquidity and monetary measures

India’s central bank, the Reserve Bank of India (RBI) takes liquidity and monetary measures from time to time based on the prevailing economic condition of the country. From March 2020 onwards, the RBI has announced a slew of measures to alleviate the financial distress caused by the COVID-19 outbreak. Some of the measures taken are:

All the above measures have infused liquidity and provided monetary support to businesses, thus contributing towards the early revival of the Indian economy.

Indicators of India’s economic revival

Some of the early green shoots of revival observed in the economy are:

We believe that India is well on the way to a quick sustainable economic recovery and this is an opportune time for foreign investors to make an early start in the rejuvenating Indian economy.

For advice on doing business in India and exploring your investment options and site selection in this market, please feel free to email us at india@dezshira.com.

This article was first published by India Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in ChinaHong KongVietnam, Singapore, India, and Russia. Readers may write info@dezshira.com for more support.  


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