- Date : 14/10/2019
- Read: 8 mins
How are the recent announcements made by the Finance Minister going to boost the economy, particularly the housing and export sectors? Find out.
The Finance Minister announced a fresh round of measures to lift the economy, this time focussing on two key and struggling sectors: housing and export.
She started the presentation with a brief insight into the present macro-economic landscape of India, pointing out that consumer price inflation (CPI) has been kept under the desired bandwidth. India’s CPI at present is slightly below the world average, both of which are comfortably below the 4% mark. Notably, India’s CPI is much lower than the average CPI of other emerging and developing economies, which is just below 5%. India’s CPI has seen a sharp fall in the last year and a half, with headline inflation falling from 4.8% in Q1, 2018-19 to 3.2% last month.
The recent positivity in the growth rate of industrial production was highlighted, with consistent growth reflected from Q4, 2018-19 onwards. Similarly, growth in the annual fixed investment (shown in the presentation as a percentage of the GDP) could also be seen, both in the year-on-year and quarter-to-quarter comparisons.
Ms Sitharaman pointed out that the improvement in the fiscal deficit has been consistent, brought down from 4.1% in 2014-15 to 3.4% in 2018-19. The current account deficit has, on the contrary, not been able to sustain the improvement it showed till 2016-17.
The FDI inflow has seen improvement with each passing year, climbing from 44.3 billion USD in 2014-15 to 62 billion USD in the last financial year. This year’s Q1 saw a 6 billion USD-plus improvement over the same period last year.
Follow Up on Previous Measures and Steps Taken
With regard to the earlier circulars and announcements made on 23rd and 30th August, implementations have been made on announcements. These include:
- Partial credit guarantee scheme wherein banks are to buy assets of NBFCs.
- Improvement in the credit outflow from banks and interest rate cuts are being permeated to the end-users. The Finance Minister has disclosed plans to meet the heads of the public sector banks to discuss these recommendations and take stock of the implementation status.
There was also an update on the tax regime and assessment reforms which included:
- Use of technology in improving assessment procedures – minimising human interface as part of the faceless assessment, automated allocation of assessment, anonymous assessment units and electronic communication.
- System generated Document Identification Number for all notices, summons and communications.
- The window for compounding of past offences offered till the end of the calendar year. It will reduce the pile-up of cases in courts.
- Waiver in the prosecution of small taxpayers in cases related to minor procedural defaults. Setting up of collegium to sanction prosecution for cases below a value of Rs. 25 lakhs.
Before proceeding to elaborate on the measures aimed to boost exports and housing, Ms Sitharaman gave a brief retrospect of the steps taken so far in export promotion, particularly in the last two years. It included a mention of measures like Interest Equalisation Scheme, improvement in India’s ranking in World Bank’s Ease of Doing Business, Trade Infrastructure for Export Scheme, the launch of Agriculture Export Policy, Transport and Marketing Assistance Scheme and Scheme for Rebate of State and Central Taxes and Levies.
The New Measures
- A new scheme for Remission of Duties or Taxes on Export Products (RoDTEP) has been designed in line with the Merchandise Exports from India Scheme (MEIS), which it seeks to replace. However, the MEIS and the old Rebate of State and Central Taxes and Levies (RoSCTL) will continue till 31 December 2019, for those exporters who have already taken orders. The government will forego revenue of over Rs. 50,000 crores on the RoDTEP scheme. This scheme will incentivise the exporters to a greater extent compared to all the existing schemes put together.
- A fully automatic refund module is nearing completion and will become operational by the end of September 2019. The purpose of this module is to ensure quick and automatic refunds of input tax credits. There will be lesser funds tied down in the refund process, and it will benefit MSME exporters with faster cash flow.
- The Export Credit Guarantee Corporation (ECGC) will expand the scope of the Export Credit Insurance Scheme (ECIS), and the premium paid by MSMEs will be reduced. This measure will cost the government around Rs. 1700 crores every year but will make working capital borrowing and burden lighter for the exporters.
- Priority sector lending in the export sector is set to increase with a fresh infusion of Rs. 36,000 crores, extending up to Rs. 68,000 crores. The norms and guidelines for priority sector lending are under the review of the RBI.
- Active monitoring of export finance-related data is being planned through an Inter-Ministerial Working Group, located within the Department of Commerce. Dashboard based tracking and review will be done, along with active intervention if required.
- Through diligent use of technology, the time taken by India’s shipping ports and airports to export is looking to be reduced. By maximising digitisation and getting rid of manual intervention and documentation, Ms Sitharaman wants our ports to meet the TAT standards of ports like Boston and Shanghai. Export logistics-related clearances are going to be digitised, and the performances of the ports will be published in real-time for all to see. An inter-ministerial group will be in charge of this plan.
- Annual mega shopping festivals are planned in India across four destinations by March 2020. Exporters can expect to get bulk buyers and build networks in these events which will be for the sectors, Gems and jewellery, Handicrafts, Yoga, Tourism, Textiles and Leather.
- A special free trade agreement utilisation mission will be launched. This will be done to utilise the concessions available in the FTAs, senior Department of Commerce representation will be ensured in consultations with export promotion bodies and FIEO. It will help exporters utilise concessional tariffs and sensitise them, particularly the MSMEs, about preferential duty benefits and compliance requirements.
- The Director General of Foreign Trade, in collaboration with the Export Inspection Council, will launch an online Origin Management System in the coming weeks. This system is aimed to enable ease of doing business for the exporters.
- A time-bound implementation of mandatory technical standards will be implemented to improve competition, quality and the performance ecosystem among exporters. This will help in the quality determination of Indian exports, a new working group under the Commerce Ministry will be formed which will look into the timeline.
- Further, in line with export quality assurance, affordable and internationally accepted testing and certification infrastructure will be developed in India, using the PP model.
- On boarding and enrolment of artisans and cooperatives will be done into a programme to enable their seamless transition into the e-commerce market. A mass enrolment is planned through the Ministry of Textiles and organisations like TRIFED, CIE etc.
The other major beneficiary to receive the stimulus was the housing sector. Marred by excessive supply in some places and stagnating sales figures, the housing sector got the following sops:
- The guidelines to External Commercial Borrowing (ECB) will be relaxed, in consultation with the RBI. This will make it easier for the developers to arrange funds from overseas funds and also ease the financing of home buyers who are eligible under the Pradhan Mantri Awas Yojana.
- The interest on the house building advance will be reduced and linked to the yield of 10 year Government security yields. This step will encourage government employees, who are a major customer category in the real estate sector to buy new houses.
- A special window will be set up to provide last mile funding to unfinished housing projects which are non-NPA (Non-performing asset) and non-NCLT (National Company Law Tribunal), and those that have a positive net worth and fall under the affordable and middle-income category. The fund for this special window will be around Rs. 10,000 crores that’s offered by the Government of India and an equal amount by outside investors. It will be operated and managed by housing and banking sector experts and treated in line with the National Investment and Infrastructure Fund and set up as a Category II- AIF Trust.
These announcements have tried to effect change and impact two very stressed sectors in the Indian economy – housing and exports.
By assuring fund inflow through relaxation of ECB norms and by providing last-mile funding for the existing projects, the government has given hope to both new as well as existing projects. Relaxed ECB norms can bring in cheap overseas funds which can make housing finance more reasonable, particularly in the affordable housing sector. The overall impact would be to revive the demand in the sector and make housing projects more viable.
Similarly, the benefits in the export sector will enable exporters to avail working capital more easily, reduce their insurance costs, provide them with better export logistics infrastructure and make them more competitive in the global market. Focus on the labour-intensive export sector will make it easier to ensure that the benefits trickle down to the ultimate producer. The export benefits will make export business more seamless and encourage more exporters to reap the financial benefits, apart from raising the profile of Indian exports in the global stage. Read more about the FM's announcements of measures to be taken in order to boost the housing sector.