Measures To Boost Economy

3.
ECONOMY
3.1. MEASURES TO BOOST ECONOMY
Why in News?
Recently, various measures were announced to revive the economy.
Monetary Policy Measures
Repo rate cut Repo rate has been brought down to 5.4% to spur credit growth
Monetary Policy • Linking floating rate loans extended to both retail consumers as well as MSMEs to
Transmission external benchmarks (e.g. repo rates, yield on 3/6 months treasury bill) to improve
monetary policy transmission
• A floating interest rate moves up & down with rest of the market or along with an index.
This contrasts with a fixed interest rate, in which interest rate of a debt obligation stays
constant for the duration of loan's term.
Higher flow of funds to RBI relaxed liquidity norms to allow more lending to non-banking finance companies (NBFCs)
NBFC sector by banks
Measures to boost exports

Exports • Scheme for Remission of Duties & Taxes on Export Product to replace Merchandise Exports
from India Scheme (MEIS) for all goods exported. It will provide more incentives to the
exporters than existing schemes put together
• Fully automated electronic refund for exporters
Exports Finance • Under the expanded Export Credit Insurance Scheme (ECIS), Export Credit Guarantee
Corporation will offer higher insurance cover to banks lending working capital for exports.
Govt. will provide ₹1700 cr annually.
• Priority Sector Lending norms for Export Credit revised to make available to banks an
additional ₹36,000 cr to ₹68,000 cr for lending to the export sector
• Effective monitoring of export financing by an inter-ministerial working group under
Department of Commerce, tracking disbursal of export credit through a public dashboard
Export Facilitation • Leverage technology to reduce Turn Around Time (TAT) at airports/ports/customs through
process digitization and elimination of offline/manual services
• Annual mega shopping festivals to be organized in 4 places across 2020 March in 4 themes
(G&J, Handicrafts/Yoga/Tourism, Textiles and Leather) on the lines of Dubai
Free Trade • Special FTA Utilisation Mission to promote awareness of preferential duties among Indian
Agreements exporters and facilitate compliance requirements (Rules of Origin/Certificate of Origin etc.)
• Online “Origin Management System” for exporters to enable them to obtain Certificates of
Origin – CoO (under Rules of Origin) to be launched by Directorate General of Foreign Trade
(DGFT)
Engineering • Time bound adoption of mandatory technical standards and their effective enforcement by
Standards setting up a Working Group on Standards in Department of Commerce
• Affordable testing and certification infrastructure to be adequately expanded and developed in
PPP mode to enable exporters to get all internationally accepted tests done within India
Handicraft Export Enable handicrafts industry to effectively harness e-commerce for exports through mass enrolment
of handicraft artisans and cooperatives directly on e-commerce portals
Measures to boost housing sector

Relaxation of External Relaxation of External Commercial Borrowings (ECB) guidelines for affordable housing to
Commercial Borrowings facilitate financing of home buyers who are eligible under the Pradhan Mantri Awas Yojana
(ECB) guidelines
House Building Advance Lower interest rates on House Building Advance and link it with 10 year G Sec yields
Special window for Government announced a special ₹20,000 cr fund (₹10,000 cr from Government & roughly
affordable and middle- ₹10,000 cr from outside investors) as a last-mile funding for completion of ongoing housing
income housing projects that are not classified as non-performing assets (NPAs) or are facing bankruptcy
proceedings under NCLT.
29 www.visionias.in ©Vision IAS

Measures to boost manufacturing sector
Lower Corporate Tax • An amendment in Income Tax Act 1961 to give any domestic company an option to pay
income-tax at the rate of 22% subject to condition that they will not avail any
exemption/incentive
• Effective corporate tax rate for such companies shall be 25.17% and they will not be
required to pay Minimum Alternate Tax (MAT)
Boost Make in India A new provision inserted in Income Tax Act’1961 allows any new domestic company,
incorporated on or after 1st October 2019 & making fresh investment in manufacturing, an
option to pay income-tax at the rate of 15%.
Expand the scope of CSR Currently, 2% of the CSR fund can be spent on incubators, funded by Central/State
funding Governments or PSUs and making contributions to public funded universities, IITs, National
Laboratories and autonomous bodies engaged in conducting research in science,
technology, engineering and medicine aimed at promoting SDGs.
Impact of the reforms
• Improve private investment: Tax cuts, by putting more money in the hands of the private sector, can offer
people more incentive to produce and contribute to the economy, which, in turn, will create employment.
• Helps to attract investors: A cut in corporate taxation rate will India at parity with East Asian economies and
will make India more competitive on the global stage
• Boost consumer demand: With lower tax rates in place, the firms may cut prices in order to attract
consumers, which in turn will boost consumer demand
• Increase in fiscal capacity: The reforms have the potential to revive the economy, help boost tax collections
and compensate for the loss of revenue.
Challenges associated
• Tax cut is expected to cause a yearly revenue loss of ₹1.45 lakh crore to the government which is struggling
to meet its fiscal deficit target.
• Income tax cut should be preferred as it would leave consumers with more disposable income and boost
consumption demand. Although, the impact of an income tax cut would be limited as the number of tax
payers in the country are few.
• To ensure operational profitability while making lending rates cuts, banks may start cutting the interest rate
they pay to deposit holders. This might push the depositors towards non-liquid investments such as gold,
real estate etc.
• Limited target: The proposed special fund for housing sector, primarily targeted at affordable & mid-level
housing projects that are 60% complete, has left out majority of the pending projects.
• Tax issues: Recent measures don’t address the key demands of developers such as tax rebate and lower
interest rate for home buyers and developers.
• Global scenario: An uncertain oil market could negate any impact in the short term. India imports 80% of its
oil requirement and an increase in crude prices may put further pressure on the ₹, which has dropped 2% in
the past three months.
For more information on Economic slowdown, refer VISIONIAS August 2019 Current Affairs.
3.2. AGRICULTURAL CREDIT

Why in news?
Recently, the report of the internal working group to review the agricultural credit was released by RBI.
Agricultural Finance in India – A brief history
• Phase 1 (1951-69):
o Thrust on developing primary sector since 1st FYP in 1951.
o National Credit Council in 1968 emphasized that commercial banks must increase financing to small scale industries
and agriculture
o Nationalization of banks in 1969 put thrust on opening of rural/semi-urban bank branches
• Phase 2 (1970-1990)
o The decade of 1970s marked the entry of commercial banks into agricultural credit with Lead Bank Scheme and
regulatory prescription of Priority Sector Lending (PSL).
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Measures to boost exports

Measures to boost housing sector

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3.2. AGRICULTURAL CREDIT

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