After Foreign Trade Policy review gives big boost for small businesses, will RBI cut rates today?

Economists say the RBI’s Monetary Policy Committee has its task cut out: cut or hold rates or soften its tone to accommodative from its current neutral stance.
The Reserve Bank of India  (File Photo)
The Reserve Bank of India (File Photo)

NEW DELHI: The mid-term review of the Foreign Trade Policy (FTP) has brought relief to exporters, especially in the Micro, Small and Medium Enterprises (MSME) and labour intensive sectors. The annual cumulative incentives have been increased by Rs 8,540 crore — most of it funneled to sectors with a preponderance of MSMEs.

As the RBI’s Monetary Policy Committee began its closed-door, two-day review on Tuesday, market opinion is divided on whether the central bank will cut or hold policy rates on Wednesday. Economists say the MPC has its task cut out: cut or hold rates or soften its tone to accommodative from its current neutral stance.

Making the announcement on FTP, Union Minister of Commerce and Industry Suresh Prabhu said the review is aimed at promoting exports by “simplification of processes, enhancing support to high employment sectors, leveraging benefits of GST, promoting services exports and monitoring exports performance through state-of-the-art analytics”. “Emphasis will be on exports of agriculture products to increase farmers’ income,” Prabhu added.

“FTP will focus on exports from the labour intensive and MSME sectors by way of increased incentives in order to increase employment opportunities. Emphasis will be given to exports of agri products to increase farmers’ incomes,” Prabhu added.

The incentives announced include increasing the scope of the Merchandise Exports from India Scheme (MEIS) and Service Exports from India Scheme (SEIS). The MEIS incentive for exports by MSMEs and labour-intensive industries have been hiked by 2 per cent across the board. The measure will see annual incentives to the segment rise by Rs 4,567 crore.

In textiles, the MEIS incentive has been raised for ‘ready-made garments and made-ups’ by 2 per cent at an additional annual outgo of Rs 2,743 crore. For services, the SEIS incentives have been hiked by another 2 per cent, involving an extra Rs 1,140 crore addition to annual incentives to the segment.

The result of the FTP mid-term review measures will provide the leather sector with extra annual incentives to the tune of Rs 749 crore, Rs 921 crore for hand-made carpets of silk, handloom, coir, jute products, Rs 1,354 crore for agri products, Rs 759 crore for marine products, Rs 369 crore for telecom, electronic components and Rs 193 crore for medical equipment.

Focus on improving agri-sector exports is also part of the slew of measures. A new Agricultural Exports Policy is being drafted and it will include critical elements such as creating a cold chain and transport logistics network, promoting organic exports and setting up up-to-date organic export certification and accreditation programmes.

To increase ease of accessing markets, both old and new, professional teams will be be set up to handhold, assist and support exporters in meeting regulatory norms. New logistics and services divisions are to be set up -- the former to promote integrated development and the latter to examine Exim policies and procedures to push services exports.

Meanwhile, the ministry also announced certain measures to ease exporters’ issues with the Goods and Services Tax (GST) system. With upfront payment of GST on inputs clogging the flow of working capital, the review has extended the benefit of sourcing inputs from abroad as well as domestic suppliers without the need to pay GST upfront. An e-wallet is set to be launched on April 1, 2018, to make these schemes operational. Merchant exporters have also been allowed a nominal GST of 0.1 per cent on procuring goods from the domestic market for exports.

Services activity shrinks

A day after Fitch Ratings lowered its growth estimate for Indian economy, saying the rebound in economy appears to be weak, the widely tracked Nikkei purchasing managers’ index (PMI) on Tuesday showed that the services sector slipped to 48.5 points in November from 51.7 in October — well below the 50 mark that separates expansion from contraction. The decline signals that the Indian economy may take time to pick up.

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