As Indian exporters await a package from the government to tide over the Covid-19 crisis, a look at the fiscal stimuli extended by its Asian competitors suggest time may be running out for New Delhi for a meaningful intervention. Around a half of outbound shipment orders has already been cancelled and key markets — the US and the EU — are badly bruised by the pandemic.
Competitors, including China, Vietnam, Bangladesh, Indonesia Malaysia and even Hong Kong, already announced a series of fiscal packages — some up to 3% of GDP — by the first week of April. Of course, not all measures are meant for exporters but they benefit from accelerated spending to get the economy back on foot at the earliest. Also, enhanced expenditure on social and healthcare sectors has helped the country get its massive pool of workers back to work at the earliest, helping exporters resume shipments swiftly.
China has rolled out a massive RMB 2.6 trillion (or 2.5% of GDP) worth fiscal measures or financing plans.
China’s fiscal package includes tax relief, increased spending on Covid control, disbursement of unemployment insurance and waiver of social security contributions. Overall, fiscal expansion will be much higher, factoring in proposed additional measures, including an increase in the ceiling for special local government bonds of 1.3% of GDP, according to an IMF assessment.
Apart from fiscal stimulus, China central bank injected liquidity into the banking system via open market operations, including RMB 3 trillion (roughly 2.9% of GDP) in the first half of February and another RMB 170 billion in late-March, expansion of subsidised re-lending and re-discounting facilities by RMB 1.8 trillion to support medical device manufacturers, MSME and the farm sector and credit extension to MSMEs (RMB 350 billion).
Vietnam, which is emerging as another export hub of Asia, has introduced a fiscal support package of VND 226 trillion (3% of GDP), according to the IMF data. Already a low-tax destination for industries like electronics and garments, it announced tax cuts to the tune of 2.2% of GDP and deferred land rental payment for 5 months to support affected entities.
To support firms and households, it also approved temporary cut in electricity tariff by up to 10% for 3 months. Firms and workers are allowed to defer their contribution (up to 12 months) to the pension fund and survivorship fund without interest penalty. Other measures include tax exemptions for medical equipment, first 3-year exemption of business registration tax for SMEs; streamlining of tax and custom audit and inspection at firms and preferential tariffs on key items. In addition, it adopted a cash transfer package worth 0.5% of GDP for affected people and entities for 3 months from April to June.
Indonesia has offered stimulus packages totalling 2.8% of GDP. Its support includes a cut in the corporate tax rate from 25% to 22% in FY21 and further to 20% from FY22. It has also extended relief for tourism, among the worst-hit sectors, and increased social and healthcare benefits.
Bangladesh, which has emerged as the world’s second-largest garment exporter, beating India, has announced a $588-million package (0.2% of GDP) for exporters. It is also extending subsidised working capital loans of $588 million, apart from offering relief to the social and healthcare sectors.
Hong Kong, seen as a proxy for China, has announced fiscal measures worth about 10% of GDP. These include tax and fee reliefs (2.8% of GDP), cash payout to people (2.5%), employment subsidy (2.8%), a new anti-epidemic fund (1%) and sector-specific relief (0.7%) and temporary job creation (0.2%).
Malaysia has already declared three packages worth 2.8% of GDP. These include tax relief, enhanced healthcare spending, cash transfer to affected people, temporary pay leave, discounts in electricity tariff. It is also front-loading certain investment spending for this year. The country has also declared grants for MSMEs, higher wage subsidies, and a 25% discount on foreign workers’ fees, which will also help exporters.
India, which was among the last set of nations where the Covid-19 spread its tentacles, has announced a Rs 1.7-lakh-crore (0.8% of GDP) relief package for the poor and the vulnerable and is planning to calibrate its reponses to help the economy over the coming weeks. However, more than a half of its last package, announced on March 26, included funds meant for state governments and those available under existing programmes. Separately, it has announced `15,000 crore to boost medical response to the Covid-19 crisis and other healthcare spending over four years. But it’s still preparing an economic package, although the central bank has already initiated a raft of measures to improve liquidity in the system.
As for exporters, no meaningful dole-out has been announced so far, apart from the continuation of old schemes and certain procedural relaxations. For instance, the government recently extended the validity of the Foreign Trade Policy (FTP) for 2015-20 by a year to March 2021 and relaxed certain other norms. The FTP extension will enable exporters to continue to get incentives under existing programmes — including the Merchandise Exports From India Scheme (MEIS), interest equalisation scheme and transport subsidy scheme (for farm exports) — without disruption for one more year. However, a decision on extending the Services Exports Promotion Scheme is yet to be made.
India’s merchandise exports collapsed by almost 35% year-on-year in March, with exporters warning a further deterioration in April and job losses to the tune of 15 million if the government doesn’t step in swiftly with a package.
