The Finance Minister has announced a comprehensive set of measures to stimulate the economy, currently experiencing a slowdown. The deceleration is primarily due to weak consumer demand (evident in areas like auto and housing sales) and a volatile global environment (including the US-China trade war and Brexit). This article focuses on these initiatives, their objective, and their anticipated impact.
Boosting the Export Sector Through ICT
The government has initiated several strategies to leverage technology in promoting exports. A major feature is the full electronic refund module for swift and automated refund of Input Tax Credits (ITC), expected to be operational by September 2019. Deducting the tax paid on inputs from the tax payable on the final output defines ITC. An online “Origin Management System” for exporters will also be launched, issuing Certificates of Origin (CoO), which validates the source of goods imported into any country. This certificate is crucial for exporters to claim benefits for goods of Indian origin in the export country. The plan also includes digitizing all export clearances (like port, airport, customs, etc.) to reduce the “Time to export”.
Introduction of RoDTEP
The Merchandise Exports from India Scheme (MEIS) is set to be replaced by Remission of Duties or Taxes on Export Product (RoDTEP), from January 2020. The new scheme, compliant with world trade rules, aims to incentivize exporters more than the existing schemes combined. The MEIS was introduced with the goal of offsetting infrastructural inefficiencies and costs related to exporting goods manufactured in India, including those produced by the MSME sector.
Boosting Export Financing
To enhance bank credit for exporters, the Export Credit Guarantee Corporation (ECGC) plans to expand its Export Credit Insurance Scheme (ECIS). This expansion will extend higher insurance cover to banks lending working capital for exports. Currently, banks lending to exporters for working capital are covered to 60%, but this is projected to increase to 90%. This increase should result in lower overall cost of export credit, including interest rates—especially beneficial for MSMEs.
| Current coverage | Projected coverage |
|---|---|
| 60% | 90% |
Effective Use of FTAs and Mega Shopping Festivals
The government plans to set up a Free Trade Agreement (FTA) Utilisation Mission led by a Senior officer in the Department of Commerce. This team will work to ensure that exporters take full advantage of concessionary tariffs in each FTA. In addition, the government will organize annual mega shopping festivals in four locations across March 2020, on lines similar to those in Dubai, to give exports a boost.
Measures to Boost the Housing Sector
The External Commercial Borrowing (ECB) guidelines will be relaxed to facilitate financing for home buyers eligible under Pradhan Mantri Awas Yojana. There will also be a cut in the interest rate on house building advances, linking them with the 10 Year Government Security yields. Additionally, a Special Window Fund will provide last mile funding to non-NPA and non- NCLT projects in the affordable and middle-income category, to which the government, along with other investors including LIC and private banks, will contribute up to Rs. 10,000 crores.