The Centre Saturday announced a fresh set of measures aimed at two flagging sectors of the economy, exports and housing, in a bid to reverse a deepening economic downturn.
The measures, announced by Finance Minister Nirmala Sitharaman, include helping affordable housing projects stuck for want of last-mile funding but not categorised as Non Performing Assets (NPAs) and a corpus of around Rs 20,000 crore for last-mile funding of these projects.
Sends the right message
The export measures will boost this key engine of growth that fell to a 25-quarter low in April-June. While global environment remains tense, the government making trade a priority should help.
Priority sector tag for export credit was also announced along with overhaul of the tax refund schemes for exporters to replace the existing Merchandise Exports from India Scheme (MEIS), which will cost the exchequer about Rs 50,000 crore per year, roughly the same outgo on the existing scheme.
Industry players and experts are of the view that while the priority sector status to exports will provide some relief to exporters, it is unlikely to have a significant impact on Indian export growth, which responds more to global demand. The package involving last-mile funding for housing projects, which the government says could benefit an estimated 3.5 lakh dwelling units, was under consideration during the budget as well.
The FM also announced that India will now have its own version of an annual shopping festival on the lines of the one hosted by Dubai. This annual shopping festival, likely to begin from March 2020, will be held in four Indian cities and the focus areas would include gems and jewellery, textiles and leather, said Sitharaman.
Alongside these measures, a provision for higher insurance cover on exports by Micro, Small and Medium Enterprises (MSMEs), monitoring of export finance credit by an inter ministerial group on a weekly basis, faster turnaround time at Indian ports and maximum utilisation of concessional tariffs under existing Free Trade Agreements were also announced to promote exports.
Sitharaman said the government will “continue doing structural reforms” and that economic growth is expected to improve in the next quarter. Gross Domestic Product (GDP) fell to a 25-quarter low of 5% in April-June.
For the affordable housing sector, the government announced a special fund with Rs 10,000 crore equity contribution from the Centre and a similar amount by the private sector. This fund will provide last-mile credit to stuck projects which are non-NPA and not undergoing resolution under the National Company Law Tribunal (NCLT) and are net worth positive.
Economic Affairs Secretary Atanu Chakraborty said an estimated 3.5 lakh dwelling units will fall under such a category across India, and these projects can benefit from this fund. “If they (projects) are already in NCLT, they will decide on how those (projects) will be resolved,” Sitharaman said to repeated queries on how the government will resolve such stuck projects.
“As per our study, majority of the funding is required by projects that are at around 25% per cent completion stage. As per our estimates, around 50,000-60,000 will be eligible from this kind of funding from the government,” said Pankaj Kapoor, Founder and MD, Liases Foras Real Estate Rating & Research Pvt Ltd.
Others felt the measures may not benefit the industry in a big way. Jaxay Shah, National Chairman, real estate industry body CREDAI said the government has just touched the tip of the surface with the recent announcements. “They are not realising the gravity of the situation. Real estate industry is the second largest contributor to our GDP and creates millions of employment opportunities…We all are working towards realising the Prime Minster’s dream for housing for all by 2022 but it is becoming challenging if requisite policy reforms will not be announced,” said Shah.
The Finance Ministry, in consultations with the RBI, will announce further relaxation in external commercial borrowings norms for the affordable housing segment. The interest rate on house building advance to government employees will be lowered and linked with yields on government securities. A ten year benchmark bond has yield of around 6.6 per cent at present, which could help lower interest costs on home loans for government employees from the present market rate of over 8.1 per cent.
On the exports front, a new scheme called Remission of Duties or Taxes on Export Product (RODTEP) will replace the MEIS under the Foreign Trade Policy of India (FTP 2015-20). The MEIS and other schemes will continue for the textile sector until December 30, 2019.
All sectors including textiles will migrate into RODTEP from January 1, 2020. Under the RODTEP scheme, the government will remit all taxes and duties paid by exporters. MEIS, which provides incentive in the form of duty credit scrip to exporters to compensate for loss on payment of duties, has to be phased out since it is not compliant with WTO norms.
“The new scheme which is being proposed is a different scheme as compared to the MEIS…The basis of new scheme is refund of all taxes and duties which are not yet refunded.the overall envelope for the duty forgone under the new scheme will be more or less the same as MEIS which is at present around Rs 40,000-45,000 crore (annually). Otherwise, MEIS will have to be closed as it is not WTO compliant. The new scheme is WTO compliant and will go on,” Directorate General of Foreign Trade Alok Chaturvedi said.
The RODTEP scheme will be in operation from January 1, 2020, and the government will soon seek Cabinet approval for this, he said.
Among other measures to promote exports, the government said a fully electronic refund module for quick and automated refund of Input Tax Credit for exporters is nearing completion and will be implemented by September 2019.
The Export Credit Guarantee Corporation (ECGC) will expand the scope of ECIS (Export Credit Insurance Service) and will offer higher insurance cover to banks lending working capital for exports. This is expected to lead to moderation in premium payment by MSMEs and cost about Rs 1,700 crore per annum to the government.
Enhanced ECGC cover will ensure that foreign and Rupee export credit interest rates will be below 4% and 8% respectively for exporters. “This will enable reduction in overall cost of export credit including interest rates especially for MSMEs” said Sitharaman. The credit scheme for exporters would enhance insurance cover up to 90 per cent from 60 per cent currently, resulting in lower cost of credit for exporters.
The government is also reviewing the Priority Sector Lending norms in consultation with the RBI, which will release an additional export credit of around Rs 36,000-68,000 crore. An inter-ministerial group will be set up under the department of commerce to monitor export finance credit on a weekly basis.
The FM said the government will leverage technology to reduce the time taken for exports. Ports like Boston in the US takes about 0.55 days as turnaround time (or less than half a day), while Shanghai in China takes about 0.83 days. In contrast, the best port in Kochi takes about 1.10 days.
“We are pushing technology so that our turnaround time at ports also reach the best global benchmark. It will be completely implemented in another three months time. Actual turnaround time will be published in real-time for all ports. An IMG will again be made accountable for this,” said Sitharaman.
The government will also set up an FTA Utilisation Mission headed by a senior officer in the Department of Commerce to maximise benefits available under Free Trade Agreements.
The Commerce Ministry has also been engaged in efforts to open reviews of India’s existing FTAs with various countries like the 10-member ASEAN, with which it has an over $21 billion trade deficit. ASEAN earlier this week agreed to a review, and Commerce Minister Piyush Goyal announced that India has also made similar requests to Japan and South Korea, with which India has around $7.9 billion and $12 billion trade deficit respectively.