Category: Export-Import

Budget Impact on Construction Sector

~ Finance_TAPMI

By Akshay Chaudhury

Challenges faced by the Industry:

  • Low-cost finance via FDI, ECB, and domestic banking assistance: Both the Centre and state must work together to remove bottlenecks for faster implementation of the reform measures in order to promote FDI in real estate. The ECB route should be opened for developers and FDI must be permitted in limited liability partnership (LLP) realty firms
  • A little clarity on land titles: Cross purchase shouldn’t suffer tax. So if the proceeds from the sale of commercial property are used to buy residential property or vice versa, capital gains tax shouldn’t apply. This exemption should be extended to cases where properties in both categories, residential and commercial, are from the proceeds of a single property.
  • The tedious process of getting project approvals: The red tape and time involved to approve real estate projects has caused the sector much grief. This issue can be addressed by a single-window clearance mechanism that will not only reduce the gestation period of projects but will also insulate them from cost escalations and delays in handing over possession.

Expectations from the Budget:

  • Industry status to the sector which contributes almost 15% to the Indian GDP
  • Clarity on GST and a raise in HRA deduction allowance
  • Single-window clearance mechanism which would ramp up supply and help rationalize prices and ensuring construction quality norms are not compromised
  • Clarity on entry and exit norms of FDI and reduce the lock-in period
  • Digitize all land records
  • Confidence-boosting measures to put more money in people’s hands in order to bring back the sales to pre-demonetisation levels

Budget Announcements:

  • 64,000 crore allocated for highways
  • A total allocation of Rs. 39,61,354 crore has been made for infrastructure
  • ‘Infrastructure’ status for Affordable housing aligned with the government’s agenda of ‘Housing for All by 2022’
  • PM Awas Yojana allocation raised from Rs. 15,000 crore to Rs. 23,000 crore
  • 27,000 crore on to be spent on PMGSY; 1 crore houses to be completed by 2017-18 for homeless
  • PM Kaushal Kendras will be extended to 600 districts; 100 international skill centers to be opened to help people get jobs abroad
  • National Housing Bank will refinance individual loans worth Rs 20,000 crore in 2017-18
  • Dispute resolution in infrastructure projects in PPP mode will be institutionalized
  • Trade Infrastructure Export Scheme to be launched in 2017-18; total allocation for infra at record Rs 3.96 lakh crore
  • Holding period for immovable assets reduced from 3 years to 2 years and indexation to be shifted from 1.4.1981 to 1.4.2001
  • Abolition of Foreign Investment Promotion Board (FIPB)
  • Dairy processing infrastructure fund to be set up

Trends after Announcements:

  • The BSE Realty index gained 4.7%, the highest among sectoral indices for the day.
  • Realty stocks such as Godrej Properties Ltd, Housing Development and Infrastructure Ltd and Prestige Estates Projects Ltd rose by around 6% on easier access to low-cost funds.
  • DLF rose by 6.7%, although it has little exposure to the affordable housing category.
  • Construction firms with a greater exposure to roads, such as IRB Infrastructure Developers Ltd, rose by 2.5%.
  • GMR Infrastructure Ltd gained due to the sops for roads and airports.
  • Larsen and Toubro Ltd gained as it is the largest player in infrastructure.

Conclusion:

Overall, it was a positive budget for the sector and the government has done well to create awareness for the need to increase tax compliance. Demonetisation was a temporary setback and the economy must bounce back. In particular, we look forward to the gains once GST is rolled out later this year.

BUDGET IMPACT ON TEXTILE SECTOR

~ Finance_TAPMI

By Abhishek Kwatra

Expectations:

  • Increased allocation from the budget spending towards the textile sector.
  • Budgetary allocation towards Amended Technology Upgradation Fund Scheme (ATUFS) was expected to increase.Under ATUFS, the garment manufacturing units get a subsidy of 25% for capital expenditures which was increased from 15% in Jan ’17 recently. Its budget allocation was reduced to Rs. 2013 Cr. from Rs. 2610 Cr.
  • An export incentive scheme reducing duty costs, specifically for cotton products as cotton makes up for 90% of export demand.

Budget announcements

  • Allocation to textile sector decreased marginally. It was reduced from Rs 6290 Cr. in 2016-17 to 6230 Cr. in 2017-18. Most of the spending on any other components of the budget was reduced due to overall lesser allocation of the budget which went against the industry expectation. This could be attributed to Rs. 6000 Cr. special package announced for textile sector in June ’16.
  • Tax rate for SMEs (of annual turnover up to Rs 50 Cr. in 2015-16) has been reduced from 30 to 25%. Since more than 60% of the sector is unorganized, this will help improve the bottom line of the companies.
  • The provision for textile infrastructure has been increased to Rs 1,860 Cr. in 2017-18 from Rs 506 Cr. in FY17. It will give a major boost to textile infrastructure by increasing the allocation for building textile parks, incubation facilities, processing and development centers.
  • Lesser allocation of the budget towards Amended Technology Upgradation Fund Scheme(ATUFS). The allocation was reduced to Rs. 2013 Cr. in 2017-18 from Rs. 2610 Cr in 2016-17. This has been one of the major government schemes helping the manufacturing units to remain competitive upgrading their production facilities.
  • Sharp reduction in allocation to price support scheme (Rs 0.01 Cr. in 2017-18 as against Rs 610 Cr. in 2016-17) under the Cotton Corporation of India (CCI) It may lead to greater volatility in cotton prices in next fiscal for the domestic companies. Cotton prices increased 66.6% in July’16 which forced many firms to reduce production. Firms have maintained a need for higher subsidies for cotton from CCI. This would greatly impact the bottom line of the companies.
  • announced plans to launch a scheme for labor-intensive leather and footwear industry to boost employment generation. This announcement was in line with the special package of 6000 Cr. announced for textile sector in June’16 with an aim of increasing exports by $30 billion and help attract investment worth 74,000 Cr.  in three years.
  • Basic Custom Duty on Nylon mono filament yarn (for use in long line system for Tuna fishing only) reduced to 5% (from earlier 7.5%)
  • The objective of doubling farmers’ income, skilling of youth, and development of Infrastructure. This would provide end to end solution by integrating rail, road, air and sea which in turn would greatly benefit the textile industry that is spread across the nation.

Market movement:

Companies have more or less maintained their price on Feb 3 since the announcement of budget on Feb 1. Companies such as Page industries, Arvind Ltd. and Raymonds Ltd. Were some of these. However, Vardhman Textiles defied the trend as it rallied by about 5% of its value.

Conclusion:

The budget did not meet the expectations of the textile industry. It ignored many important issues such as an export incentive scheme and raw material subsidies, specifically Cotton.

With already strong competition from Bangladesh and Vietnam, an export incentive scheme was the push that the sector needed as many firms had been able to cover their losses from domestic market owing to demonetization only due to stable export demand. Though the domestic demand would improve eventually, GST implementation needs to be implemented as soon as possible bringing in cost savings (outbound taxes) from the supply chain.

Feasibility Of Export Led Growth In Time Of Global Slow-Down

~ Finance_TAPMI

By- Apoorv Srivastav

The engine of the global economy has started to stagnate. One of the biggest arguments that favors this statement is that the export led growth is no more feasible. The export led growth pioneered by Germany and Japan in 50’s and 60’s was further adopted by the Four Asian Tigers: Hong Kong, Singapore, South Korea and Taiwan, before finally getting implemented by China in early 90’s. The export-led growth rose to eminence in the late 70s, replacing the import-substitution model and was a prominent global economic factor for the following four decades.

The fall of export led growth

Currently, US economy is debt saturated and still struggling to recover from the crash of 2008, and Europe is also constrained by fiscal austerity and Brexit. Export has lost its feasibility as buyers themselves are struggling. And the impact of which can be seen from Bank of Japan adopting negative interest rates & European Central Bank (ECB) implementing Quantitative Easing (QE) to increase the domestic consumption by reducing its lending rate 10 basis points to -0.4%.

Secondly, Emerging Market (EM) economies have become a larger share of the global economy, increasing from 39.1 percent in 1980 to 57 percent in 2014 and their collective export is not letting the industrialized economies recover, leading to the economic tension between EM and Industrialized nations.

For EM country, export led growth would have been a safe bet, but the recessionary condition of the US and Euro market is making hard to find buyers. This proves export led model is critically dependent on the global economy, and any global crisis will affect the economy directly.

The competition has increased with many EM countries following the same model. One of such methods is ‘Currency devaluation’ which countries like China and Japan are using to boost their exports and seeking trade advantage over other countries.

Though export led growth proved to be a sound strategy for Asian countries, but it was not the case everywhere. Mexico, whose GDP growth was 6.4% during 1950-80, reducing to 2.6% for 1980-2008 and finally 1.1% in 2013 because of export led growth model.

To conclude, we can say that the export led economy has lost its feasibility for EM and is posing a risk to the global economy. Countries need to recalibrate and shift from the export led growth to the demand led growth, with a greater role of domestic and regional demand.