Will This Stimulus Plan be enough ?

The RBI measures to spur economic growth:

* Repo-rate cut by 1% from 7.5% to 6.5%

* Reverse Repo rate cut by 1% from 6% to 5%

* Reverse Repo rate cut for the first time since 2003

* CRR, SLR kept unchanged at 5.5% and 24%, respectively

* Housing loans up to Rs 20 lakh to be put under priority sector lending by banks providing credit to HFCs

* Refinance for up to Rs 7,000 crore to SIDBI for the employment intensive micro and small enterprises

* Refinance for Rs 4,000 crore for the National Housing Bank under consideration

* Concessional finance may be allowed for up to 180 days for overdue bills of exporters

* Companies may be allowed to buy back FCCBs prematurely

These measures intended to step up demand and arrest growth moderation. – PTI





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 Reserve Bank of India 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.



"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 3,00,000 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 5 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 (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 1,00,000 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 of seven per cent per annum.



Besides, it would provide an additional 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 1 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.