Govt announces package to boost economy & Highlights

Govt unveils package to boost economy
Govt announces stimulus package to boost economy

The government today announced major tax cuts across the board to boost demand and allocated additional funds and incentives for exports, housing, textile and infrastructure to stimulate the economy, hit by the global financial crisis. "The government has been concerned about the impact of global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem," an official statement said. The package, coming on the back of fresh monetary measures announced by the RBI yesterday, includes a four per cent cut in ad-valoram duty across the board, to boost additional spending, besides enhanced credit for exporters, along with a Rs 10,000 crore mop up for India Infrastructure Finance Company. Import duty on Naptha for use in power sector as well as export duty on iron ore to be eliminated. "In order to provide a contra-cyclical stimulus via plan expenditure, the government has decided to seek authorisation for additional plan expenditure of up to Rs 20,000 crore in the current year," the statement said, adding the total spending programme in the four months ending March was expected to be Rs 300,000 crore. As part of efforts to boost the housing sector, the public sector banks would shortly announce a package for home loan borrowers in two categories -- up to Rs five lakh and between Rs 5-20 lakh, the statement said, adding that additional measures would be taken, as necessary, to promote an accelerated growth trajectory.

As a special gesture for the automobile sector, government departments would be allowed to take up replacement of vehicles within the allowed budget. Attaching special significance to infrastructure development, the government authorised India Infrastructure Finance Co Ltd (IIFCL) to raise Rs 10,000 crore through tax- free bonds by March 2009 and said it would be permitted to raise further resources. "In particular, these initiatives would support a PPP (Public-Private Partnership) programme of Rs 100,000 crore in the highways sector," it said. Paying special attention to exports, the government decided to provide an interest subvention of two per cent up to March 2009 for pre and post-shipment export credit for labour-intensive exports like textiles, leather, marine products and SME sector. The concession is subject to a minimum rate of interest. Besides, it would provide an additional Rs Rs 1,100 crore for full refund of terminal excise duty/CST and another Rs 350 crore for export incentive schemes and a back-up guarantee of Rs 350 crore to ECGC (Export Credit Guarantee Corporation) for providing guarantee for exports to difficult markets and products. To boost collateral free lending to Micro and Small enterprises that are facing a credit crunch, the government doubled the current guarantee cover for loans to up to Rs one crore from the existing limit of Rs 50 lakh. Besides, the lock in period for loans covered under the existing credit guarantee scheme will be reduced from 24 to 18 months, to encourage banks to cover more loans under the guarantee scheme. These announcements for the MSE sector comes a day after RBI announced a refinance facility of Rs 7,000 crore for Small Industries Development Bank of India to facilitate the flow of credit to such industries. As part of the stimulus package, textile sector, the largest provider of employment, would get an additional Rs 1,400 crore towards the entire backlog of Technology Upgradation Fund. The statement also said that all items of handicrafts will be included under Vishesh Krishi and Gram Udyog Yojana. Among other initiatives, the government has decided to completely lift import duty on Naphtha for use in the power sector while export duty on iron ore fines will be eliminated.

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Highlights of package

The following are the highlights of the fiscal stimulus package unveiled by the government Sunday to contain the impact of global financial crisis on the Indian economy:

Plan, non-plan expenditure of Rs.300,000 crore (Rs.3,000 billion/$60 billion) in four months - Parliament nod to be sought for Rs.20,000 crore more toward plan expenditure - Across-the-board cut of four percent in the ad valorem central value-added tax - Interest subvention of two percent on export credit for labour intensive sectors - Additional allocations for export incentive schemes - Full refund of service tax paid by exporters to foreign agents - Incentives for loans on housing for up to Rs.500,000, and up to Rs.2 million - Limits under the credit guarantee scheme for small enterprises doubled - Lock-in period for loans to small firms under credit guarantee scheme reduced - India Infrastructure Finance Co allowed to raise Rs.100 billion through tax-free bonds - Norms for government departments to replace vehicles relaxed - Import duty on naphtha for use by the power sector is being reduced to zero - Export duty on iron ore fines eliminated - Export duty on lumps for steel industry reduced to five percent

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