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Stimulus Package to Tackle the Slowdown in the Indian Economy

Monday, September 16, 2019 2:50

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As part of the third stimulus package for the Indian economy, the government has unveiled a set of measures to boost exports and the housing sector, keeping up the momentum in its efforts to propel the slowing economy. India’s GDP growth decreased for the fifth consecutive quarter in April-June 2019 to 5 per cent, the lowest in six years. This was on the back of faltering domestic demand, with both private consumption and investment on the downtrend.

Measures for the stagnating reality sector include a special window for affordable and middle-income housing to provide last-mile funding for completion of ongoing housing projects, which are not under the insolvency process in the National Company Law Tribunal (NCLT), and not declared non-performing assets (NPAs or bad loans), particularly affordable and middle-income housing projects. These should be at least 60% complete, and, each home in the project should cost less than Rs 45 lakh to be eligible. For this, a fund of Rs. 10,000 crore would be contributed by the government and roughly the same amount by outside investors, such as LIC and other institutions and private capital from banks, sovereign funds and FDIs. The government also announced that the External commercial borrowing (ECB) guidelines will be relaxed, in consultation with the Reserve Bank, to help housing developers obtain overseas funds for affordable housing. The announced reduction in interest on ‘Housing Building Allowance’ for government employees in line with the 10-year Government-Securities yield should also boost housing demand from those benefitting, and help in achieving the target of the ‘Pradhan Mantri Awas Yojana’ (PMAY). Status of measures already announced to increase liquidity for HFCs, and repo-linked lending rates, development on guarantee schemes will also be looked into.

In order to incentivise exporters, a new scheme for reimbursement of taxes paid on exports — Remission of Duties or Taxes on Export Product (RoDTEP) — was announced. This World Trade Organisation-compliant scheme will reimburse taxes, duties and cess on petroleum products and electricity and other embedded non-GST levies that add on to the value of the export. The RoDTEP scheme which comes at an estimated cost of Rs. 50,000 crore to the exchequer will come into effect from January 2020 and will replace the existing incentive schemes like the existing Merchandise Exports from India Scheme (MEIS). Additionally a Rs. 1,700 crore annual dole will allow Export Credit Guarantee Corp (ECGC) to offer higher insurance cover to banks lending working capital for exports. This will enable reduction in the overall cost of export credit including interest rate, especially for MSMEs. The Priority sector lending (PSL) tag for export credit is under consideration of the Reserve Bank, which will release an additional Rs. 36,000 crore to Rs. 68,000 crore as export credit. Other measures for exporters included fully electronic refund of input tax credit possibly from end-September, action plan to reduce time to export or turnaround time at airports and ports by December and a special FTA utilisation mission that will work with export houses to utilise concessional tariffs in each free trade agreement (FTA) India has with different nations.

The government’s previous policy measures to stimulate the economy included support for the automobile sector, reduction in capital gains taxes for FPIs, and additional liquidity support for shadow banks. Accompanying structural reforms included a further easing of the foreign direct investment (FDI) regime and consolidation of the public sector banks. While the present export sector measures are encouraging they are not expected to provide immediate relief and boost. On the reality front action and funds on a larger scale would be needed to complete the projects of the builders who have already defaulted and are a root cause for the housing slowdown.

Source: http://ecofin-surge.blogspot.com/2019/09/stimulus-package-to-tackle-slowdown-in.html

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