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India Plans $7 Billion of Export Stimulus to Revive Economy

India unveiled new measures involving a more than $7 billion boost to exporters and housing projects, as part of efforts to revive a flagging economy.

A program to refund taxes and levies for export promotion will be effective Jan. 1 and involves forgoing 500 billion rupees ($7 billion) in revenue, Finance Minister Nirmala Sitharaman told reporters in New Delhi on Saturday. The government will separately set up a 100 billion-rupee funding window for affordable housing to revive stalled projects, she said.

Exporters will benefit from tax incentives and improved credit and insurance cover, while the real estate sector will get access to last-mile funding for affordable housing projects provided they haven’t been declared as non-performing asset or pushed to insolvency proceedings, she said.

The stimulus — the first significant fiscal giveaway — is the latest in a series of steps announced by the government to boost consumer demand and attract investments in an economy that’s seen growth decelerate for five straight quarters. Prime Minister Narendra Modi has been under pressure from industry groups and political opponents to use the fiscal space afforded to him last month by a more than $24 billion windfall from the Reserve Bank of India.

The government will make every effort to ensure that the revenue loss from the measures won’t affect the fiscal deficit target, Sitharaman said. In July, she set a goal to narrow the budget gap to 3.3% of gross domestic product in the year ending March 2020.

“I’m conscious of it,” Sitharaman said. “I will do as much as possible to stick to it.”

The support to exporters is key for Asia’s third-largest economy, which is seeking to triple annual overseas sales to $1 trillion in five years. Exports have dropped in two of the three months to August despite a weaker rupee. A trade war between the U.S. and China, and a weakening global economy further risk damping demand for India’s pharmaceutical products, garments and steel.

The measures are welcome to the extent “the government recognizes the demand side pressures in both real estate and exports sectors,” said Madhavi Arora, an economist with Edelweiss Securities Pvt. in Mumbai. “However the steps will help only at the margin.”

The problems of these sectors are deep-rooted and the steps announced Saturday only tackle some of them, Arora said.

Not Enough

The measures “seem to come in tranches, rather than at one go,” Sitharaman said, referring to some steps unveiled earlier to boost growth. “But each time we’re making a clear attempt to also to connect with the previous announcements that we have made.”

She said the funding window for affordable residential projects, along with easier foreign borrowing rules for housing, will help builders access money for reviving stalled projects.

Not all are convinced. The move to revive homes sales — hit by a series of economic shocks — may not be enough, said Jaxay Shah, chairman of the Confederation of Real Estate Developers Association of India.

The Reserve Bank of India last month lowered its growth forecast for the economy to 6.9% for the year to March, while cutting interest rates by a cumulative 110 basis points so far this year.
Source: Bloomberg

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