Union Finance Minister Nirmala Sitharaman on Saturday announced a third set of government decisions to revive the economy, including a ₹50,000 crore export incentive scheme and a ₹10,000 crore special window to provide last mile funding for unfinished housing projects.
The decisions announced by the Minister at a press conference on Saturday 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.
The third set of announcements focussed on providing a fillip to exports, which contracted 6.05% in August, and easing the plight of home buyers.
Last-mile funding
For the housing sector, the most notable decision was the setting up of a special fund that would provide last-mile funding for housing projects that are not categorised as non-performing assets and are not undergoing National Company Law Tribunal proceedings.
“The objective is to focus on construction of unfinished units,” Ms. Sitharaman said. “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.
Duty remission
On exports, Ms. Sitharaman said, “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 existing dispensation in textiles of MEIS and the old ROSL (Rebate of State Levies) will continue up to December 31, 2019,” the Minister added.
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.
Ms. Sitharaman said the new scheme will incentivise exporters even more, but added that she could not specify by exactly how much since the rewards would be calculated on the basis of the actual duty paid.
“Textiles and all other sectors which currently enjoy incentives up to 2% over MEIS will transit into RoDTEP from January 1, 2020,” she added. “In effect, RoDTEP will more than adequately incentivise exporters than existing schemes put together. The revenue foregone is projected at up to ₹50,000 crore per year.”
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.
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.
Higher insurance cover
“At present banks are covered for 60% of what they lend to exporters for working capital,” Director General of Foreign Trade Alok Vardhan Chaturvedi explained. “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 ₹4,000 crore in the first year and ₹5,000 crore in the second year.”
The initiative will cost the exchequer about ₹1,700 crore per year, Ms Sitharaman added, 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 ₹36,000 crore to ₹68,000 crore as export credit.
Apart from providing credit and incentives to exporters, the reforms package also included ways to make the 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’.
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. The actual turnaround times will be published in real time for each port and airport and an inter-ministerial group will be made accountable for this.
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.
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, and that the interest rate on house building advances will be lowered and linked with the 10 Year Government Security yields.
“Government servants contribute to a major component of demand for houses,” Ms Sitharaman explained. “This will encourage more government servants to buy new houses.”
