Fiscal stimulus package worth Rs.20000 crore announced

The government today has announced a fiscal stimulus package worth Rs 20,000-crore. Prime Minister, also the incumbent Finance Minister, Dr Manmohan Singh announced this package in New Delhi who had earlier today cut short his Kolkota visit.

In a release on the press information Bureau website, it stated, "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". Yesterday, the Reserve Bank of India in the wake to increase liquidity in the market had announced a 100 basis points cut in the repo and reverse repo rate.

"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. In addition, steps are being taken to ensure full utilisation of funds already provided, so that the pace of expenditure is maintained, " the government's release stated. "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".

This fiscal stimulus package is primarily aimed at lending greater support to exports, housing, MSME (micro, small and medium enterprises) sector, textile, infra financing sectors; and also contains a cut in the cenvat rate and eliminates certain import and export duties.

As an immediate measure to encourage additional spending, the release said, an across-the-board cut of 4% in the ad valorem Cenvat rate will be effected for the balance part of the current financial year on all products other than petroleum and those where the current rate is less than 4%.

A release note stated that, "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 Reserve Bank has announced that it will shortly put in place a refinance facility of Rs.4000 crore for the National Housing Bank".

And as a further measure of support for this sector, public sector banks will shortly announce a package for borrowers of home loans in two categories:

(1) up to Rs.5 lakh and

(2) Rs 5 lakh-Rs 20 lakh.

The above sector will be under scanner and additional measures would be taken as necessary to promote an accelerated growth trajectory as and when needed".

The Government attaches the highest priority to supporting the medium, small and micro enterprises (MSME's) sector which is critical for employment generation, the release further noted. To facilitate the flow of credit to MSMEs, the RBI announced a refinance facility of Rs 7000 crore for SIDBI which will be available to support incremental lending, either directly to MSME's or indirectly via banks, NBFC's and SFC's.

An additional allocation of Rs 1400 crore will be made to clear the entire backlog in TUF Scheme, in a bid to boost the textile sector.

The government also aims to address the problem faced in infrastructure spending. A large number of infrastructure projects are now being cleared for implementation in the Public Private Partnership mode. These projects may experience difficulty in reaching financial closure given the current uncertainties in the financial world. In order to support financing of such projects, the Government authorised the India Infrastructure Finance Company Limited (IIFCL) to raise Rs.10,000 crore through tax-free bonds by March 31, 2009. These funds would be used by IIFCL to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in highways and port sectors.