Govt Unveils Stimulus PackageTo Revive Economy

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New Delhi,: Responding to the economic slowdown affecting the country, the govt on Sunday unveiled a wide ranging stimulus package aimed at bringing down prices and providing relief to sectors hardest hit by the global financial crisis.

The Government effected an across-the-board 4% cut in CENVAT that will bring down prices of cars, cement, textiles and other goods as part of an economic stimulus package that also earmarks an additional Rs 20,000 crore for infrastructure, industry and export sectors.

In a virtual mini-budget that entails a revenue loss of Rs 8,700 crore in the next four months, the package seeks to revive the crucial housing, export, automobile, textiles and small and medium enterprises sector to counter the economic slow down caused by the global financial crisis and the recession in the West.

The Central Value Added Tax (CENVAT) on non-petroleum products would come down to 10, 8 and 4% for different categories.

The package also contained full exemption from basic customs duty on industrial intermediate naphtha to give relief to power sector and withdrawal of export duty on iron ore fines while cutting down the levy on export of iron lumps from 15% to 5%.

The much-awaited package, set rolling by Prime Minister Manmohan Singh who is also the Finance Minister, targets power, exports, housing, auto, small and medium industries and infrastructure sectors through additional funding and guarantees that total an amount of over Rs 30,000 crore.

The 10-point package contains substantial incentives for the sectors hit by the slowdown, besides allowing India Infrastructure Finance Company Ltd (IIFCL) to raise Rs 10,000 crore through tax free bonds by March as part of efforts to support Rs 1,00,000 crore programme in the high-way sector.

Reflecting high priority for the exports, which for the first time in five years recorded a negative growth at 12 per cent, the government provided Rs 1,450 crore toward refund of excise duty and incentives, besides giving a guarantee of Rs 350 crore for difficult market and product exports.

To bring down the cost of exports, hit by a sharp devaluation of rupee in the recent months, the government also offered a two per cent interest subsidy for labour intensive products like textiles, leather and SMEs, subject to a minimum interest of seven per cent.

It said, "As an immediate measure to spur additional spending, an across-the-board cut of four per cent in the ad-valorem Cenvat rate will be effected for the balance part of the current fiscal on all products other than petroleum and those where the current rate is less four per cent."

The public sector banks will soon announce a package for borrowers of home loans up to Rs five lakh and between Rs five lakhs to Rs 20 lakhs, the statement said adding that additional measures would be taken as necessary to promote an accelerated growth trajectory in the housing sector.

Stating that RBI has already announced a Rs 4,000 crore refinance facility for the National Housing Bank, government said that the low cost Indira Awas Yojna is another area where plan expenditure can be increased easily.

Terming as "critical" the medium, small and micro enterprises (MSMEs) for job creation, the government sought to boost the collateral-free lending on loans from Rs fifty lakh to Rs one crore with guarantee cover of 50 per cent.

Besides, the lock in period for loans under existing credit guarantee scheme are being cut from 24 to 18 months, a move that would encourage banks to give more loans to the sector, the government said, adding that PSUs are being asked to ensure prompt payment of bills to MSMEs.

The stimulus package announced today comes on the heels of RBI's monetary measures to ease the cost of funding for the banks, signalling that lenders should lower their interest rates.

"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 today.

Having assured stability of the financial system, the government said it has focussed its attention on countering the impact of the global recession on India's economic growth.

"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," it added.

The measures also included the government departments being allowed to seek replacement of government vehicles within the allowed budget, in relaxation of extant economy instructions.

"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," it added.

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