I'm not sure if you realize that eleven years have passed by when the 2008 crisis hit the world because it still feels like just yesterday. Companies were collapsing and going bankrupt. In no way am I suggesting that a similar crisis might happen but, downfalls are happening in the country. The stock markets are fluctuating, significant players in industries are getting hit because of the NBFC crisis, and the macros of the country are in a struggle.
The GDP growth rate is much weaker than it was expected. The next two months will be crucial as it seems to be a make or break situation for the government in terms of strengthening the Indian economy. A supply growth without a demand growth is of no use. Thus, reforms are needed to have a resurgence in demand in the economy. A mix of policy improvements and demand dynamics can make way for India to stand firm in the face of any slowdown or economic shock.
On September 14th, 2019, the Finance Minister announced that over Rs 70,000 crore would be utilized for exporters and the housing sector. A program that will be effective from January 1st will provide for a refund of taxes and levies for export promotion. The government plans to set up a 100 billion rupee funding to revive the hindered projects. This spending is in line with setting up stressed asset funds and boosting the six-year low growth in the economy.
What was the need for this measure?
Well, the need for this measure was because India's exports dropped by 6.05 percent to $26.13 billion in August 2019 as compared to August 2018. The imports of the country also declined by 13.45 percent. This created a trade deficit in August 2019.
The export sectors which were found on the green side in August 2019 were iron ore, electronic goods, spices, and marine products, whereas engineering goods and petroleum products recorded negative growth.
Will this measure act as a stimulus to boost the economy?
A credit guarantee for export finance and a release of Rs. 50,000 crore in revenue annually might help straighten the credit flow. From the point of view of exporters, they are entitled to the following benefits:
- Benefit from tax incentives
- Improved credit and insurance cover
The real estate sector benefits as it will get access to last-mile funding for accessible and affordable housing projects.
But, from the macroeconomic point of view, this stimulus is the first fiscal measures from the government to boost demand. The problems persisting in the economy are deep-rooted and the steps declared might mitigate a few of them.
The measures do not seem enough to eradicate the issues in one go. Although the steps taken will help in providing liquidity to finish unfinished units in the real estate sector, not everybody is convinced that this move will revive the economy. These measures speak volumes in favor of the supply side of the economy, but our country is facing demand crunch, and reforms for the same have to be taken.
Equity markets have taken a hint from the global activities, inflation data, and measures by the government regarding the export and real estate sectors. This will definitely bring in some sentiment in the market, especially in the textile, housing, infrastructure, and export-oriented stocks.
Read our blog How is Skyrocketing Oil Price Affecting Indian economy? for more information about current happenings.