The Government on Sunday announced a Rs 300,000 crore ($60 billion) package to boost the economy with specific measures for various sectors and contain the impact of the global financial crisis on India.
The amount is to be spent over the remaining four months on a host of areas and stake holders such as exporters, housing, infrastructure and textiles. A four-percent cut in Value Added Tax has also been announced to help the corporate sector in general.
“The Government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem,” an official statement said, unveiling the package.
The measures come a day after the Reserve Bank of India reduced its key rates and eased the norms for accessing overseas funds to reduce the cost of borrowing for commercial banks and signal them to lower interest rate for India Inc.
These measures were overseen by Prime Minister Manmohan Singh himself, in consultations with now Home Minister P Chidambaram, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Commerce Minister Kamal Nath, officials said.
As a first step, the Government will seek Parliament’s mandate for an additional allocation of Rs 200 billion to take the authorised plan and non-plan expenditure to Rs.3,000 billion in the remaining months of the fiscal. Parliament session is slated to open Dec 10.
“The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year,” the statement said.
The measures for exporters, who saw a decline in shipments in October for the first time in five years, include an interest support of two percent for labour intensive sectors like textiles, handicraft and handloom.
This apart, additional allocation has been made towards various incentives for exporters, guarantee of export credit, full refund of service tax to foreign agents and refund of service tax under the duty drawback scheme.
Instructions have also been given to state-run banks to unveil a scheme under which borrowers for houses under two categories—up to Rs, 500,000 and up to Rs.2 million—will get special incentives.
“Housing is a potentially very important source of employment and demand for critical sectors and there is a large unmet need for housing in the country, especially for middle and low income groups,” the statement said.
For small and micro enterprises, the limits under the credit guarantee scheme which gives access to working capital and other financial needs, have been doubled to Rs.10 million.
The lock in period for loans covered under the existing credit guarantee scheme is also being reduced from 24 to 18 months to encourage banks to extend more loans under the credit guarantee scheme, the statement said.
The government has also authorised the India Infrastructure Finance Co Ltd (IIFCL) to raise Rs.100 billion ($2 billion) through tax-free bonds to support financing of government-financed infrastructure projects.
“These funds will be used by IIFCL to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in highways and port sectors.”
In a push to the automobile sector, government departments have been allowed to replace vehicles within the allowed budget, with a major relaxation in the time-consuming procedures.
This apart, import duty on naphtha for use by the power sector is being reduced to zero, while export duty on iron ore fines will be eliminated, and reduced to five percent for lumps.
“The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity.”