‘Govt, RBI should take more steps to revive economy’

Finance Minister Nirmala Sitharaman, in a series of press conferences, detailed several measures to give immediate relief to the poor, migrant workers, and farmers, improve liquidity in the system to help the middle class, small businesses, and financial intermediaries and reform the agriculture and factor markets in the medium term. No economic revival and reform package can please all and so, divergent views have come in regarding whether the package adequately addresses the challenges.

However, there is little doubt that the package was finalised after extensive consultations and due deliberations.

The president of Federation of Indian Export Organisations (FIEO) said that though the overall stimulus package announced by the government had been encouraging and should help in medium to long term, there are still concerns regarding stimulating demand and tackling supply chain disruptions. He demanded that the exports may be provided additional MEIS (Merchandise Exports from India Scheme) of 2 per cent across the board and 4 per cent for labour-intensive sectors to help the exporters in difficult times. He wanted the roll-over of forward cover without interest and penalty and automatic enhancement of 25 per cent in credit limits to address liquidity challenges, besides creation of the muchawaited export development fund for marketing of Brand India products across the globe. He urged that with the cancellation of about 70 to 80 per cent of orders casting a gloomy picture, besides major job losses and rising loan defaults amongst exporting units, an export package must be announced immediately.

The government seems to be of the view that the cancellation of orders does not have much to do with the cost competitiveness of exports. Also, that all stakeholders have to absorb the losses to some extent and cannot expect only the government finances to take the hit.

It is not that the government has not done anything to help the exporters. The commerce ministry has extended the interest equalisation scheme for exporters by one more year, helping the exporters get credit at lower interest rates. Many non-fiscal measures such as granting more time to fulfill export obligation have been announced.

Last week, useful clarifications came through regarding issues related to the Special Economic Zones schemes. At the ground level, many Customs officers are trying to help the importers and exporters to the extent possible, especially in regard to granting quick refunds.

The Finance Ministry, however, gave a surprise by giving effect to a retrospective provision in the Finance Act, 2020 regarding transition credits under Section 140 of the Central Goods and Services Act, 2017.

On Friday, the Reserve Bank of India (RBI), besides interest rate cut and other helpful measures, extended the period for pre-shipment and post-shipment export credits to 15 months and the time limit for making import payments to 12 months. The RBI also extended ~15,000 crore line of credit to Exim Bank.

Since last Monday, the government announced many relaxations for resumption of economic activities and movement of people. However, there is certain nervousness as the number of confirmed Covid-19 cases is going up and it is far from certain how the government will respond and whether the economy will quickly revive.

Given the uncertainties, we can expect the government and RBI to take more steps to cope with the evolving situation and revive the economy.