Over the weekend, the government unveiled measures aimed at reviving the country’s troubled housing industry and exports. These include a Rs 20,000-crore refund to help the completion of affordable and middle-income housing projects that are Non Performing Assets and are not before the bankruptcy court or the National Company Law Tribunal, and which face last mile funding problems. The government will contribute Rs 10,000 crore to this stress fund and other investors will contribute the rest. A professional team will manage the fund that is estimated to potentially benefit 3.5 lakh housing units across the country. This may seem like the Troubled Asset Relief Program (TARP) in the US in which the government provided funds to help avoid foreclosures by home buyers. In the absence of details on how many projects would qualify and the selection of such projects, considering that there are hundreds of projects promoted by developers in which thousands of crores of money pumped in by home buyers and banks are stuck, this and the package for the export sector appear to be half measures.
In the backdrop of sliding exports — the data for August shows a decline of 6.05 per cent compared to a year ago — the finance minister, Nirmala Sitharaman, announced a new export incentive scheme that will be WTO compliant, full electronic refund of GST to exporters by the end of this month, easier funding and annual mega shopping festivals in four cities by 2020, modelled perhaps on Dubai, and a faster turnaround time in airports and ports.These are not likely to help significantly reverse the trend in the near term given the escalating trade war and the global slowdown. Indeed, better infrastructure and a shift to zero rating of exports or levying of zero rate of tax on exports on the lines of countries which have implemented GST, thus easing the compliance burden, and unlocking capital that is locked up could provide a better boost competitiveness of Indian exports. Ultimately, countering the slowdown may hinge largely on the government stepping up public spending or investment in stalled projects. And at a time when revenue growth is far lower than projected so far this fiscal, it is also important that the GST Council also stand firm in rejecting the growing demand for a cut in GST to arrest the secular decline in auto sales.
Fiscal orthodoxy and the spectre of bond vigilantism may deter the government from stepping up public spending. But it is interesting that in the face of weakening growth, fiscal rules are being overturned in the West. Some days ago, both the European Central Bank President (ECB) Mario Draghi and his successor, Christine Lagarde, pitched for fiscal stimulus by European governments. Monetary policymakers in Europe want governments to ramp up public spending to boost growth with the ECB having stepped up its bond buying programme. These should provide enough cues for the government here too.