New Delhi: The Narendra Modi administration on Saturday announced a host of steps to support two struggling sectors of the economy—housing and exports—in a bid to create more jobs and to reverse an economic downturn that has turned out to be challenge for policy makers.
The measures announced by finance minister Nirmala Sitharaman, include easing of foreign borrowing norms to facilitate low cost funds for affordable home buyers, a roughly ₹20,000 crore corpus for last mile funding of healthy housing projects, an overhaul of the tax refund schemes for exporters that will benefit exporters upto ₹50,000 crore a year and priority sector tag for export credit which will improve exporters’ access to credit.
The central government will put in half of the ₹20,000 crore corpus for last mile funding for housing projects which are neither bankrupt nor have not defaulted on their loan repayment.
Sitharaman said the overhaul of the export tax refund schemes by a WTO compliant new scheme called Remission of Duties or Taxes On Export Product (RoDTEP) will benefit all products including textiles. “This will incentivise all exporters more than all the existing schemes put together. The revenue forgone is projected at upto ₹50,000 crores," said the minister. Sitharaman also announced a fully automated electronic refund system for giving Goods and Services Tax (GST) credits to businesses on the taxes paid on raw materials.
Sitharaman said that the existing schemes for refund of duties and taxes to exporters will continue till the end of this year. From 1 January, only the new system will be available.
The finance minister also announced that the Export Credit Guarantee Corporation (ECGC) will expand the scope of Export Credit Insurance Service to offer higher insurance cover to banks lending working capital for exports. This is expected to reduce overall cost of export credit including interest rates, especially to MSMEs. While interest cost of dollar-based lending is likely to come down to below 4%, rupee-based borrowing cost will fall below 8%. The move comes at a time when export credit disbursement declined 23% to ₹9.57 trillion a year ago.
“Relaxing external commercial borrowing (ECB) guidelines will improve the liquidity as borrowing will become cheaper," said KR Sekar, Partner, Deloitte India.
In August, India’s merchandise exports declined for the second time in the current fiscal, while imports fell for the third consecutive month, highlighting the adverse impact of rising protectionism and trade tensions between the US and China.
The measures are expected to complement the monetary stimulus being given by the Reserve Bank of India (RBI) which has lowered the benchmark interest rate four times since January, bringing the repo rate to 5.4% in August.
Sitharaman said seven non-bank lenders have already benefited from a partial credit guarantee scheme announced in the FY20 Budget for banks to buy pooled assets of non-bank financial companies. A large part of the measures announced by the government in recent weeks has been to address the liquidity crisis among non-bank lenders and small and medium enterprises.
The ongoing economic slowdown has forced the government to consult representatives from various industries including banks, non-bank lenders, foreign investors and manufacturers after the union budget for FY20 was presented. After these meetings, Sitharaman announced measures which included front-loading of public expenditure, a massive ₹100 trillion investment into infrastructure, steps to improve access to credit for businesses, liberal foreign ownership norms and more capital for state-run banks.
India’s economy reported its weakest growth in more than six years at 5% in the June quarter, and slowed for the sixth straight quarter. The central bank has projected the gross domestic product will expand in 2019-20 at 6.9% while most analysts and financial institutions have estimated a growth rate between 6.5% and 7%.
Data showed on Thursday that India’s factory output growth accelerated to 4.3% in July from a downward-revised 1.2% a month ago. Industrial output had grown 6.5% in July 2018.
Industry representatives welcomed the move. “The Finance Minister’s announcements are comprehensive and would give a boost to the economy in the near term…The new scheme to compensate exporters for all duties is going to help considerably. Additional measures such as provision of higher insurance cover, monitoring of export finance and turnaround times at ports and airports will go a long way in improving competitiveness of Indian exporters," said Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII).