Budget 2019: How Modi government can dispel ‘jobless growth’ notion, boost labour-intensive sectors

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Updated: July 3, 2019 11:27:57 AM

Budget 2019-20: Keen to soften the blow for the MSME sector that was hit by the double whammy of demonetisation and the goods and services tax (GST), finance minister Nirmala Sitharaman could also heed industry demand for a 2% interest subsidy on bank loans to SMEs for a year.

Budget 2019, Union Budget 2019 India, Budget 2019 India, GDP growth capital expenditure Budget 2019-20, Budget 2019 GDP growth capital expenditure, Union Budget 2019 India GDP growth capital expenditure, Ranen Banerjee, PwCUnion Budget 2019 India: So, the allocation under this scheme could be more than tripled for FY20 from February’s Interim Budget level of just Rs 1,000 crore.

Budget 2019 India: Seeking to dispel the notion of “jobless growth”, the Narendra Modi government will likely roll out incentives in the coming Budget for some labour-intensive sectors such as textiles & garments, gems & jewellery and leather, particularly targeting exporters and micro, small and medium enterprises (MSME) in these sectors.

With an aim to boost exports of garments, the biggest employer after agriculture, the scope of the textile ministry’s “remission of state levies” (ROSL) scheme will be widened to also compensate apparel and made-up exporters for their payment of Central levies on inputs consumed in exports, official and industry sources told FE. So, the allocation under this scheme could be more than tripled for FY20 from February’s Interim Budget level of just Rs 1,000 crore.

Keen to soften the blow for the MSME sector that was hit by the double whammy of demonetisation and the goods and services tax (GST), finance minister Nirmala Sitharaman could also heed industry demand for a 2% interest subsidy on bank loans to SMEs for a year. Such a relief is already available but only on fresh loans and for GST-registered SMEs. Facilitating smoother flow of credit to them will be another focus area of the Budget.

Indranil Sen Gupta, chief India economist at Bank of America Merrill Lynch, said: “If the ministry of finance offers 2% subvention for a year in the July 5 Budget, it will have to pay out just Rs 100 billion each in December-March of FY20 and June-September quarters of FY21.” Such a step will “defuse the liquidity crunch at a minor fiscal cost of 0.05% of GDP each in FY20-21”, Sen Gupta said in a report.

The Budget may also seek to trim customs duty on capital goods that are not produced in India and look at creating an export development fund for MSMEs, with a corpus of 0.5% of export value so that they can aggressively take part in global trade shows, according to industry sources.

To draw people to park their idle gold holdings with banks to reduce reliance on imports and cut their damaging impact on trade balance, the Budget will likely offer a fresh push to the gold schemes, laying out plans to tweak existing ones and announce new products. It may introduce a gold savings account under the monetisation scheme that will enable banks to take deposits from customers in rupees but credit grams of gold into their accounts. The monetisation scheme, introduced in late 2015, hasn’t yet succeeded, having mopped up only about 2% of the country’s annual consumption so far.

The government may consider hedging against any price risks that are associated with sovereign gold bonds. The tenor of such securities from the current eight years may be reduced, and investors may get more flexibility to exit early. However, a key demand of the gems and jewellery sector to cut the import duty on gold from 10% may not be met.

Sharad Kumar Saraf, president of the Federation of Indian Export Organisations, has sought income tax relief to units which provide additional employment in the export sector. “Incentives may be provided based on twin criteria of incremental growth in exports and incremental growth in workers so that while on the one hand exports are increased, on the other, the employment intensive units also get a boost,” he added. If GDP has to grow at 8% or more, exports have to accelerate at over 15% a year, he added.

Having grown at 9% in FY19, merchandise export growth collapsed to just 0.6% in April and 3.9% in May. Citing persistent risks from a global trade war, the IMF has trimmed its 2019 trade growth forecast by a sharp 60 basis points to 3.4%, against the actual rise of 3.8% in 2018. This will weigh on the prospects of Indian exports.

As for employment, the NSSO’s first annual survey on employment suggested that joblessness rose to a 45-year high in 2017-18, with the unemployment rate at 6.1% (although the government asserted the findings couldn’t be compared with earlier data)

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