Going steadily towards stability

Allaying the critical state of the slumping Indian economy, the impact of which has been coming to light from different sectors, Union Finance Minister Nirmala Sitharaman's announcement of a third set of decisions pertaining to the export and housing sectors will likely revive the economy and take it closer to a place of stability. With a Rs 50,000 crore export incentive scheme and a Rs 10,000 crore special window to provide last mile funding for unfinished housing projects, targeting these crucial sectors are especially vital as they are drivers of several other associated economic activities. This fresh set of announcements seek to boost exports which had contracted 6.05 per cent in August, and ease the plight of home buyers. These large scale corrective steps came following the big announcements to first, to encourage private sector investment, and then try and bring about stability in the crucial banking system by means of a merger of select public sector banks. With respect to the housing sector, instating a special provision, a fund to provide last-mile funding for housing projects that are not categorised as non-performing assets (NPAs) and are not undergoing National Company Law Tribunal (NCLT) proceedings is particularly a striking move as it focuses on the construction and completion of unfinished units. There are several projects that are stalled due to funding issues should now get moving with this new norm. Along the lines of the National Investment and Infrastructure Fund, the government intends to contribute to the fund while other investors would be LIC and some other institutions and private capital from the likes of banks and sovereign funds. Close to 3.5 lakh dwelling units (non NPA and non NCLT) in the country are plagued with last mile funding problem. The government's contribution to this fund, which is to be professionally run with experts from housing and banking sectors, is said to be Rs 10,000 crore and the other investors are expected to contribute a comparable same amount. In a step to increase bank credit for home buyers, the guidelines for external commercial borrowing will be relaxed to facilitate financing for home buyers who are eligible under the Pradhan Mantri Awas Yojana (PMAY) and this is in addition to the existing norms for ECB for affordable housing; the interest rate on house building advances will be also lowered and linked with the 10 Year Government Security yields. Not only is this a welcome change for the common buyer seeking a home, a specific point of government servants was also considered as they form a major chunk of demand for houses. This move is directed towards the purchase of freshly constructed houses, most of which are built away from the heart of the main city. Encouraging settlements in new areas and developing them in the process is quantitatively a marker of economic growth and qualitatively, a sign of prosperity as human settlement brings with it the scope of all the necessary changes that turn a place from a piece of land to centre of peaceful living complete with all the basic essentials from food to convenient services, to institutions for healthcare, education, recreation, etc. and generating just about as much employment. As the seed of economic growth is allowed to germinate, the development form these efforts approach fruitition, another class of components will be readied to drive the economy towards greater achievements and sustained prosperity.

With the other major announcement on the export front, instating the Scheme for Remission of Duties or Taxes on Export Product (RoDTEP) to replace the Merchandise Exports from India Scheme (MEIS) is the highlight. The new set of measures for exports sector came include steps that would comprehensively address tax and duties refunds for exporters, improve credit flow to the export sector, and launch of a special free trade agreement (FTA) utilisation mission. Both MEIS and the new RoDTEP are designed to incentivise exports by giving them rewards to offset the duties they pay to export their products. The rate of reward under MEIS varies between 2 per cent and 7 per cent of the free-on-board (FOB) value, depending on the item and the country it is being exported to. The new scheme will be a greater incentive to exporters but details are not specified as the rewards will be calculated on the basis of the actual duty paid. Textiles and all other sectors which currently have incentives up to 2 per cent over MEIS will transit into RoDTEP from January 1, 2020. The Finance Minister has announces that in effect, RoDTEP will more than adequately incentivise exporters than the existing schemes put together. The revenue foregone is projected at up to Rs 50,000 crore per year. Another measure to free up working capital of exporters has been the announcement of a fully electronic refund module for the quick and automated refund of input tax credits which will become operational by the end of this month. In order to increase bank credit to exporters, Export Credit Guarantee Corporation (ECGC) will expand the scope of its Export Credit Insurance Scheme to provide a higher insurance cover to banks that are lending working capital for exports. The situation at present is that banks are covered for 60 per cent of what they lend to exporters for working capital. An increase in this to 90 per cent is the new norm. Credit flow to exporters has come down by 35 per cent but this move should increase export credit by about Rs 4,000 crore in the first year and Rs 5,000 crore in the second year. This initiative will come at a cost of about Rs 1,700 crore per year to the exchequer and would enable a reduction in the overall cost of export credit inclusive of interest rates, especially to MSMEs. In tandem with, the Reserve Bank of India is also looking into modifying the priority sector lending norms for the export sector to release an additional sum of Rs 36,000 crore to Rs 68,000 crore as export credit. Along with giving credit and incentives to exporters, the reforms package also comes with ways to make the export sector more efficient and globally competitive. The entire process of export clearances will be digitised and all offline or manual processes will be eliminated to reduce the time to export. An action plan to reduce the time to export and turn-around time in airports and ports benchmarked to international standards is said to be implemented by December 2019. With a view of making exports more competitive, steps include working with exporters to help them best exploit the advantages of the various free trade agreements India has signed with other countries, increasing the testing and certification infrastructure in India, and enforcing the time-bound adoption by industry of all necessary mandatory technical standards. In order to bring the dividends from pushed-up exports to people in general, India will also now host annual mega shopping festivals in four places.

The newly announced package of measures for boosting exports and lending a much-needed helping hand to the housing sector will steadily not only revive the economy but also bring it at a pedestal where prosperity from fundamental economic development will set in motion necessary development in various other sectors directly influencing the common man. Duly directing attention to the stressed sectors, a fillip to the housing sector, in particular, is one to ensure this elevated level basics. Having witnessed the dip in growth and a general situation of recession, the priority of reviving the economy is very correctly in place as a healthy economy is a most primary component of a thriving nation and its people.