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Updated: Jun 29, 2020 22:21 IST

Finance minister Nirmala Sitharaman on Saturday announced a set of measures to boost the economy — the third in four weeks — including a ~50,000 crore package for exports and the creation of a ~20,000 crore fund for real estate projects that is expected help complete around 350,000 flats and houses stuck in various stages of construction.

Sitharaman said the government will contribute ~10,000 crore in setting up a special window to provide last-mile funding for unfinished housing projects that haven’t turned into non-performing assets (NPAs) and are not facing proceedings at the National Company Law Tribunal (NCLT).

The projects would be “net worth positive in affordable and middle income category”, and contributions of “roughly same amount” will come from outside investors, she said.

Watch |Sitharaman announces steps to revive growth, to meet PSB heads on 19 Sept

Many of these flats and houses have been sold. According to an April report in Mint, around 400,000 such units (worth ~3.5 trillion) are stuck in the National Capital Region (NCR) centred on Delhi, and in Mumbai. Their buyers, typically belonging to the middle class, have been burdened with equated monthly instalments (EMIs) on loans taken to buy the flats and houses, and, in many cases, the rent they pay for their current dwellings.

“The announcement of ~20,000 crore fund to help stuck affordable housing projects is similar to the concept of a ‘stress fund’ to help bail out incomplete projects that have been stalled owing to problems of liquidity..,” said Niranjan Hiranandani, president of the National Real Estate Development Council, and one of Mumbai’s largest real estate developers. “It will ensure many affordable and MIG [middle income group] projects stuck because of last mile funding requirements – subject to not being under NCLT or NPA -- will be able to get completed.”

The fund will provide much-needed “last mile funding” for unfinished housing projects and help about 300,000-350,000 homebuyers across the country, Sitharaman said.

“GOI [government of India] on the lines of NIIF [National Investment and Infrastructure Fund], can contribute to the fund while rest of the investors would be LIC {Life Insurance Corporation} and other institutions and private capital from banks, sovereign funds, DFIs [development finance institutions] etc,” she said, explaining the contours of the real estate fund.

Stuck residential real estate projects have dampened sentiment and reduced the purchasing power of buyers. Economic affairs secretary Atanu Chakraborty said around 850,000 units are stuck and are in the process of resolution. “Even buyers of such units are recognised as operational creditors under the IBC [Insolvency and Bankruptcy Code] and they will get their dues,” Sitharaman explained.

To provide additional liquidity to the real estate sector, the government also plans to relax external commercial borrowing (ECB) guidelines in consultation with the Reserve Bank of India (RBI) to facilitate financing of homes for buyers who are eligible under the Pradhan Mantri Awas Yojana (PMAY). “This is in addition to the existing norms for ECB for affordable housing,” the finance minister said.

She added that the interest rate on advances for house construction by government employees will be lowered and linked with 10-year G-Sec yields to spur demand. “This will encourage more government servants to buy new houses.”

Announcing incentives for exporters, Sitharaman said a World Trade Organisation (WTO)-compliant new scheme for reimbursement of taxes paid on exports -- the Remission of Duties or Taxes on Export Product (RoDTEP) – would come into effect from January 2020, replacing the existing system of Merchandise Exports from India Scheme (MEIS). The new scheme will “more than adequately incentivise exporters,” she said.

According to director general of foreign trade, Alok Vardhan Chaturvedi, the total revenue forgone under RoDTEP is estimated at ~50,000 crore, which is about ~5,000-10,000croremore than what’s on offer under the existing scheme that will end on December 31, 2019.

The government will also contribute a ~1,700 crore annual amount under the Export Credit Guarantee Corporation (ECGC) to offer higher insurance cover to banks lending working capital for exports. “This will enable reduction in overall cost of export credit including interest rates, especially to MSMEs [micro, small and medium enterprises],” Sitharaman said.

The Reserve Bank of India is also considering revising priority sector lending norms, which could release an additional ~36,000-~68,000 crore as export credit, the finance minister added.

On lines of the popular Dubai Shopping Festival, annual mega shopping festivals in India will be organised in four places across March 2020 in four themes, the minister said. Focus of the shopping festivals will be gems and jewellery, handicrafts, yoga, tourism, textiles and leather.

Other measures to boost exports include speedy refunds of input tax credit on goods and services through electronic means by the end of September, initiatives to reduce turnaround time at airports and ports by December, and a special free trade agreement (FTA) utilisation mission to educate exporters and help them benefit from such agreements.

Exports were one of the drivers of India’s economic growth in the past decade. Between 2006 and 2010, for instance, merchandise exports grew at a compound annual growth rate of 15.4%, compared to global export growth of 5.9% in the same period. In 2010-11, they grew 37.5%. In contrast, they grew by a mere 9% in 2018-19 and according to the latest trade data, merchandise exports declined by 6% in August.

“Overall, the measures announced for exports and housing address significant pain points in these sectors, which will bring relief to the industries and help revive investments. Importantly, the two sectors have immense downstream and upstream linkages and facilitative steps to enhance fund availability will create a multiplier effect for gains to many sectors,” Confederation of Indian Industry (CII) president Vikram Kirloskar said.

On Saturday, Sitharaman said she would be meeting heads of public sector banks on September 19 to review the credit flow as banks have started transmitting policy rate cuts to lenders.

Sitharaman said that the three rounds of economic measures announced thus far aim at accelerating the economic growth. She added that the inflation rate is below 4% and there are “clear signs” of revival in the economy, as industrial production is up and fixed investment is growing. Factory output data for July, released last week, showed healthy growth of 6.5%.

India’s GDP growth slumped to 5% in the first quarter of the current financial year, the slowest pace since March 2013.

The opposition wasn’t impressed with the measures. Congress spokesperson and former commerce minister Anand Sharma said: “I would like to make this observation that the finance minister of India is lacking in macro-economic understanding. A comprehensive package for economy revival was expected. The government is unable to do because it does not have money...”

Shishir Baijal, chairman and managing director of the real estate consulting firm Knight Frank India, welcomed the policy measures announced by the finance minister to boost the real estate sector, but added: “We feel these do not sufficiently address the issues of the sector in terms of continued slow sales and low demand.”

The larger issue of demand creation has not been addressed “in any way and form” in the announcements, he said.

On the package to boost exports, Federation of Indian Export Organisations president Sharad Kumar Saraf said: “The new scheme [RoDTEP] looks attractive as it will neutralise all duties and levies suffered by the export products. Giving three months lead time till 31st December to the existing MEIS will remove the uncertainty creeping into the minds of the exporters and will greatly help to finalise their export orders.”