7 Dec :In a virtual mini-budget, the govt slashed Cenvat by four pc across the board to boost demand and announced Rs 20,000 crore additional non-plan expenditure as part of package to stimulate the economy, hit hard by the global financial crisis.
The much anticipated package, set rolling by Prime Minister Manmohan Singh who is also the Finance Minister, targets to power exports, housing, auto, small and medium industries and infrastructure sectors through additional funding and guarantees that a total amount of about Rs 35,000 crore.
The 10-point package contains substantial incentives for the sectors that have been hit by the global slowdown and recession in the west, besides allowing India Infrastructure Finance Company Ltd 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.
"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 in New Delhi on Sunday.
The steps taken by the RBI to pump sufficient liquidity in the financial system are being "supplemented by fiscal measures designed to stimulate the economy. In recognition of the need for a fiscal stimulus the government had consciously allowed the fiscal deficit to expand beyond the originally targeted level".
As part of steps to create demand in the economy that is expected to grow by over seven percent, "the total spending programme in the balance four months of the current fiscal year, taking plan and non-plan expenditure together is expected to be Rs 3,00,000 crore."
Reflecting high priority for the exports, which for the first time in five years recorded a negative growth at 12 percent, 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 percent interest subsidy for labour intensive products like textiles, leather and SMEs, subject to a minimum interest of seven percent.
It said, "As an immediate measure to spur additional spending, an across-the-board cut of four percent 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 percent."
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 percent.
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 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," the statement said.
The government also said that 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."
Noting down the need for the package, the government said “The first priority was to re-assure the people of the stability of the financial system in general and of the safety of bank deposits in particular”.
"To this end, steps were taken to infuse liquidity into the banking system and also to address problems being faced by various non-bank financing companies. These steps have ensured that the financial system is functioning effectively without suffering the kind of loss of confidence experienced in the industrialised world."
"Having assured stability of the system, the Government has focused its attention on countering the impact of the global recession on India’s economic growth.
"On the monetary side, the RBI has sought to pump sufficient liquidity into the banking system to enable bank credit to meet the expanded requirements of the economy keeping in mind the contraction in credit from non-bank sources… Interest rate reductions have also been signalled by reductions in the repo and reverse repo rates, the most recent of which was announced on Saturday when both the repo rate and the reverse repo rate were cut by 100 basis points."
For infrastructure financing, it said that 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, Government has decided to authorise the India Infrastructure Finance Company Limited (IIFCL) to raise Rs.10,000 crore through tax-free bonds by 31/3/2009.
"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 this way it is expected that IIFCL resources used for refinance can leverage bank financing of double the amount.
"Depending on need, IIFCL will be permitted to raise further resources by issue of such bonds. In particular, these initiatives will support a PPP programme of Rs 100,000 crore in the highways sector," it noted.
Besides, the government departments would be allowed to take up replacement of government vehicles within the allowed budget, while import Duty on Naphtha for use in the power sector would be eliminated.
It also said that export duty on iron ore fines would be eliminated and on lumps will be reduced to five percent.