Union Finance Minister Nirmala Sitharaman announced a third set of government decisions to revive the economy. The decisions announced by the Minister follow two previous mega announcements designed to encourage private sector investment and bring further stability into the banking system through several public sector bank mergers.
Areas focused in third set of measures
The third set of announcements focussed on providing boost to exports, which contracted 6.05% in August.
Scheme for Remission of Duties or Taxes on Export Product (RoDTEP)
One major decision is that of the setting up of the Scheme for Remission of Duties or Taxes on Export Product (RoDTEP), which will replace the Merchandise Exports from India Scheme (MEIS).
The previous 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% and 7% of the free-on-board (FOB) value, depending on the item and the country it is being exported to. The RoDTEP is expected to incentivize exporters even more. The revenue foregone under RoDTEP is projected at up to Rs. 50,000 crore per year.
Electronic refund module
In another move aimed at freeing up the working capital of exporters, the Finance Minister announced a fully electronic refund module for the quick and automated refund of input tax credits that will become operational by the end of this month.
Increase in lending to exporters
To increase bank credit to exporters, the 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. At present banks are covered for 60% of what they lend to exporters for working capital. This will be increased to 90%. Credit flow to exporters has come down by 35%. This move is expected to increase export credit by about Rs. 4,000 crore in the first year and Rs. 5,000 crore in the second year.
The initiative will cost the exchequer about Rs. 1,700 crore per year and would enable a reduction in the overall cost of export credit including interest rates, especially to MSMEs.
Simultaneously, the Reserve Bank of India is also looking into modifying the priority sector lending norms for the export sector to release an additional Rs. 36,000 crore to Rs. 68,000 crore as export credit.
These measures will include digitalization of export clearances. Further, an action plan to reduce the time to export and turn-around time in airports and ports benchmarked to international standards will be implemented by December 2019.
Other decisions aimed at making exports more competitive 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.
For the housing sector, the most notable decision was the setting up of a special fund that would provide last-mile funding for unfinished housing projects which are that are not categorised as non-performing assets and are not undergoing National Company Law Tribunal proceedings.
The government, on the lines of the National Investment and Infrastructure Fund, can contribute to the fund while the rest of the investors would be LIC and other institutions and private capital from banks, sovereign funds, etc. The Finance Minister said the government’s contribution to the fund would be ₹10,000 crore and the other investors would contribute “roughly the same amount”. The fund is to be professionally run with experts from housing and banking sectors.
In an attempt to increase bank credit for home buyers, the government also said the external commercial borrowing guidelines will be relaxed to facilitate financing for home buyers who are eligible under the Pradhan Mantri Awas Yojana.
Moreover, the interest rate on house building advances will be lowered and linked with the 10 Year Government Security yields.
Source: The Hindu