Finance Minister (FM) Nirmala Sitharaman on Saturday announced a slew of measures to boost sagging exports and a stressed real estate sector. These sops will have a total impact of more than Rs 60,000 crore on the exchequer.
She announced that a non-World Trade Organization (WTO)-compliant refund scheme will be replaced with a WTO-complaint one for exports. For this, revenue to the tune of Rs 50,000 crore will be forgone per year.
For the beleaguered housing sector, the government will set up a fund to provide credit to under-construction homes, which are not non-performing assets or have gone into the insolvency process. The government will provide Rs 10,000 crore, while an equal amount will be provided by investors.
This is the third set of announcements by the FM. On Friday, the government data showed exports had fallen by 6 per cent in August; this is the second fall in the current fiscal year (2019-20 or F20). This is also the first time packages have been announced since gross domestic product (GDP) growth fell to a six-year low of 5 per cent in the first quarter of FY20.
At the press conference on Saturday, Sitharaman said the current slowdown was temporary and there were signs of recovery. “It (5 per cent GDP growth) is a one-quarter matter but we will be definitely taking that on board and reconcile it with what I have stated in the Budget,” she said, adding that the government would stick to its fiscal deficit forecast of 3.3 per cent of GDP for FY20.
Later, the FM hinted that another slew of packages could be announced soon.
Boost for exports
The new tax refund scheme, Remission of Duties or Taxes on Export Product (RoDTEP), will replace the current Merchandise Exports from India Scheme (MEIS) on January 1, 2020.
“The new scheme will more than adequately incentivise exporters than all other existing schemes put together,” said Sitharman.
The Cabinet is yet to approve the new scheme. Director General of Foreign Trade Alok Vardhan Chaturvedi said calculations of rates at which taxes will be refunded will be made later. An official said revenue forgone under the MEIS was to the tune of Rs 40,000-45,000 crore a year; this means there will be an additional burden of Rs 5,000-10,000 crore.
Rebuilding real estate
Sitharaman also announced the special fund for ongoing housing projects. She said the fund will be set up as a category-II alternate investment fund, and will be similar to the National Investment and Infrastructure Fund. The FM said this would be professionally managed and will help in completion of affordable and middle-income housing projects.
When pressed for details, Economic Affairs Secretary Atanu Chakraborty said there were roughly 350,000 housing units across the country which are non-NPAs and not in bankruptcy proceedings. An official later said the number of housing units classified as NPAs and under bankruptcy proceedings, combined, was around 180,000 units.
“There is need to change the definition of affordable housing. At present, a unit with a price tag of Rs 45 lakh is considered affordable. We need to remove the price tag while defining affordable,” said Niranjan Hiranandani, founder and managing director of Hiranandani Group.
There were also a slew of other measures to boost real estate.
Sitharaman said the interest rate on housing building advance for government employees will be lowered and linked to the 10-year G-sec yields. “Government servants contribute to a major component of demand for houses. This will encourage more government servants to buy new houses,” she said.
The external commercial borrowing (ECB) guidelines will also be relaxed to help the housing sector obtain overseas funds in consultation with the central bank.
The minister also announced a fully automated electronic refund route for input-tax credits on the good and services tax (GST). This will be implemented by the month-end.
The minister also announced expanding the coverage of insurance under export credit guarantee corporation to 90 per cent from the existing 60 per cent, especially for the micro, small and medium enterprises (MSME) sector. These incentives will cost Rs 1,700 crore a year.
“At the moment, whatever the prevailing US dollar lending rate is, it will come down by about 4 per cent. For the rupee, it will be coming down by about 8 per cent, that is our calculation,” Sitharaman said.
Sitharaman also announced that Reserve Bank of India is considering changing priority sector lending norms for exports, which release an additional Rs 36,000 crore to the sector.
“Priority sector status to exports will provide some relief to exporters, at the same time proposal of increasing interest subvention to 5 per cent will give some competitive advantage to Indian exports. However, it is unlikely to have significant impact on Indian export growth, which respond more to global demand,” Pant said.
Sitharaman also announced a mechanism to leverage technology to reduce turnaround time for exports at each ports. Citing example of how ports in India take much longer for clearance of exports, she said Boston port takes half a day, while Shanghai takes 0.83 days of turnaround time, whereas in India, Kochi port, the best in turnaround time, takes 1.10 days.
The other measures announced by the minister include constitution of inter-ministerial working group to see flow of finance in the export sector to find out where funds are clogged up, holding of annual mega annual festival from March, 2020, creating a mechanism to help exporters use free trade agreements to their advantage, setting up of a working group on standards and enabling the handicraft industry to use e-commerce to boost their exports.
FM to meet bank chiefs on Thursday
Finance Minister Nirmala Sitharaman will meet heads of public sector banks on Thursday to review credit flow in the economy, a day ahead of the GST Council meeting. Thursday’s meeting will discuss the flow of liquidity, the partial guarantee scheme for banks to buy pooled assets of non-banking financial companies, and a mechanism to link floating interest rates by banks to external benchmarks, Sitharaman told a press conference on Saturday.