Boost to exports – relief to home buyers, but holistically earnings need to show up
The government has been taking the slowdown concerns along with bringing in easiness of business funding very seriously. The prompt action by the government in the withdrawal of higher taxes on FPI, followed by an infra push and considering the Auto sector woes, has been commendable. The recent move by the government to push exports, ease taxation processes and, more importantly, push retail – affordable housing speaks about the boldness of the government in facing challenges and seeking remedial actions for growth. The sops announced will cost around Rs 80,000 crore to the government in the near term, (Rs 10,000 crore in funding the special window for the last mile funding requirement for housing projects that are non-NPA and non-NCLT projects, some Rs 36,000 crore to Rs 68,000 crore towards export credit under the priority sector, Rs 1,700 crore per annum for higher insurance cover to banks lending working capital for exports).
India requires around 30 lakh homes each year. In top eight cities, more than eight lakh under constructed homes are lying in inventory, of which at least more than 35 percent should be under Rs 45 lakh category. The NBFC crisis has only added to the woes of the real estate sector along with home buyers who have not been able to take delivery of homes due to delay in construction. Amidst this concern, the government’s announcement of setting up a fund for non-NPA, non-NCLT category projects will act as a breather.
India dreams of being a top country in terms of ease of doing business. The government aims at promoting higher exports through raising of Interest Equalisation Scheme to 5 percent, Remission Of Duties for Export Products, offering higher insurance cover to banks lending working capital for exports, plans for reducing the turnaround time of exports will all help increase our forex reserves. At the current juncture of slowing growth, increasing exports can bring a big relief to the government and our reserves.
We expect well-run real estate companies to cater to affordable housing, textiles and banks to benefit out of the new schemes announced by the government. For the market to benefit holistically, earnings need to show up which is a product of demand pull and easy-cheap funding.
Several measures taken by the government
>> Special window to be set up with a fund size of Rs 10,000 crore for the last mile funding requirement for housing projects that are non-NPA and NCL projects but are stuck due to a lack of funding.
>> External commercial borrowing (ECB) guidelines will also be relaxed to help housing developers obtain overseas funds to facilitate financing of homebuyers who are eligible under Pradhan Mantri Awas Yojna
>> The interest rate on housing building advance will be lowered and linked to the 10-year G-sec yields for Government employees
- Tax Related Easiness
>> Fully automated GST input tax credit refund system will be ready by September end so that small and medium exporters do not get funds locked up in working capital.
>> Will offer higher insurance cover to banks lending working capital for exports
>> Remission Of Duties for Export Products — to replace the existing Merchandise Export From India (MEIS).
>> Interest Equalisation Scheme for MSME and exporters is raised to 5 percent from existing 3%
>> An action plan to reduce turnaround time at airports and ports benchmarked to international standards to be implemented by December 2019
>> A mega shopping festival will be held across the country in four destinations focusing on sectors like handicraft, yoga, tourism, textiles and leather
- In recent weeks, the government has announced a slew of economic measures including the mega bank mergers, withdrawal of higher surcharge on foreign portfolio investments (FPIs) and domestic investors, sops for infrastructure, revival package for the auto industry and relief for startup.
>> Transmission of interest rate cuts is being effected by banks and meeting to study the credit access will be with the banks a day before the GST council meet
(The author is Head of Research at Narnolia Financial Advisors Limited.)
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