Govt announces second stimulus package

Announcing the second stimulus package so that Indian economy weathers the global financial crises with success, Government on Friday liberalised various rules and regulations that will up liquidity and give a boost to spending and investment.

Admitting that the year 2009 is going to be difficult for the world, Planning Commission Deputy Chairman Montek Singh Ahluwalia said that the initiatives taken by the government were to ensure that there are no impediments to Indian economic growth.

Following are the measures that have been announced:

An SPV will be designated to provide liquidity support against investment grade paper to Non Banking Finance Companies (NBFCs) fulfilling certain conditions. The scale of liquidity potentially available through this window is Rs.25,000 crores.

An arrangement will be worked out with leading Public Sector Banks to provide a line of credit to NBFCs specifically for purchase of commercial vehicles.

Credit targets of Public Sector Banks are being revised upward to reflect the needs of the economy. Government will closely monitor, on a fortnightly basis, the provision of sectoral credit by public sector banks.

Special monthly meetings of State Level Bankers’ Committees would be held to oversee the resolution of credit issues of micro, small and medium enterprises by banks. Department of MSME and Department of Financial Services will jointly set up a Cell to monitor progress on this front.

Recently the guarantee cover under Credit Guarantee Scheme for micro and small enterprises on loans was extended from Rs 50 lakh to Rs 1 crore with a guarantee cover of 50%. In order to enhance flow of credit to micro enterprises, it has been further decided to increase the guarantee cover extended by Credit Guarantee Fund Trust to 85% for credit facility upto Rs 5 lakh. This will benefit about 84% of the total number of accounts accorded guarantee cover.

State Governments are facing constraints in financing expenditure because of slower revenue growth. To help maintain the momentum of expenditure at the state government level, states will be allowed to raise in the current financial year additional market borrowings of 0.5% of their Gross State Domestic Product (GSDP), amounting to about Rs 30,000 crore, for capital expenditures.

India Infrastructure Finance Company (IIFCL), which has already been authorized to raise Rs 10,000 cr. through tax free bonds by 31.03.2009 for refinancing bank lending of longer maturity to eligible infrastructure bid based PPP projects, will be accessing the market next week for raising the first tranche of the amount. This will enable the funding of mainly highways and port projects on hand of about Rs 25,000 crore. To fund additional projects of about Rs 75,000 crore at competitive rates over the next 18 months, IIFCL is being enabled to access in tranches an additional Rs 30,000 crores by way of tax free bonds once funds raised in the current year are effectively utilized.

Steps for helping exporters

Exporters are especially hit by recessionary conditions globally. To support exports a number of steps have been taken. As a further measure:

Taking into account the fact that the rupee has appreciated nearly four per cent against the dollar since November 2008, it has been decided to restore DEPB rates to those prevailing prior to November 2008. In order to provide predictability and stability of regime in the short term for future contracts, the DEPB Scheme would be extended till 31.12.2009.

Duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn are being enhanced. These changes will take effect retrospectively from September 1, 2008.

Exporters have raised a number of procedural issues where modification of procedures could reduce delays faced by exporters. To consider these and similar problems, Government has decided to constitute a Committee under the chairmanship of the Finance Secretary including Secretaries of the Departments of Revenue and Commerce to look into and resolve these issues on a fast-track basis.

EXIM Bank has obtained from RBI a line of credit of Rs 5000 crore and will provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian exporters at competitive rates.

Other measures

Other measures designed to counter recessionary trends are the following:

Exemptions from CVD on TMT bars and structurals, and from CVD and Special CVD on cement, which were given to contain inflation, are being withdrawn. Full exemption from basic customs duty on zinc and ferro alloys, which was also provided to contain inflation, is being similarly withdrawn.

GOI will work with state govts to encourage them to release land for low income and middle income housing schemes.

States, as a one time measure upto 30.06.2009, will be provided assistance under the JNNURM for the purchase of buses for their urban transport systems. A scheme towards this end will be announced shortly.

Accelerated depreciation of 50% will be provided for commercial vehicles to be purchased on or after 1.1.2009 upto 31.03.09.

Government is closely monitoring its spending to expedite the pace of expenditure for all schemes and programmes. Government will set up a fast track monitoring committee to ensure expeditious approval and implementation of central projects. Chief Ministers are being advised to do the same.

The measures outlined above taken together with steps taken earlier constitute a substantial counter-cyclical stimulus in the current year.

Government does not envisage any further measures in the current fiscal year. However, Government is aware that the measures required to provide an economic stimulus to the economy have to extend beyond the current financial year.

Towards this end, it is finalising Plan and Non-Plan expenditure that will be required in the next financial year to maintain the tempo. The Plan for the next year will include proposals for recapitalization of the public sector banks.

The recapitalization is expected to be of the order of Rs.20000 crore over the next two years. This will help to ensure that the banking system will not suffer from capital adequacy constraints in order to provide credit growth needed to sustain the economic momentum in 2009-10.