The government on Friday unveiled the second and final round of its fiscal stimulus package, soon after the Reserve Bank of India announced cuts in repo and reverse repo rates and cash reserve ratio to fight the economic slowdown.

The measures failed to satisfy analysts and observers, though, along with the first initiative in December, they said, these are steps in the right direction.

The package has a pre-election flavour and includes easier access to funds for many including realtors, liberalised policy on external commercial borrowings, increase in FII investment ceiling in rupee denominated corporate bonds from $6 billion to $15 billion, restoring duty entitlement passbook (DEPB) rates to the pre-November level, duty drawback and other benefits for exporters, and sops for purchase of commercial vehicles.

Those expected to benefit from the package mainly include sectors such as housing, automobile and infrastructure, besides exporters.

The government did not reveal the quantum of the fiscal package. Planning Commission deputy chairman Montek Singh Ahluwalia only said “it was significant.”

However, the total revenue shortfall at the end of the financial year, as a result of all the fiscal measures, is likely to be around Rs 40,000 crore, he said.

The first round of fiscal package, of around Rs 30,000 crore, was unveiled in November, including excise duty cuts across sectors. Asked if anymore fiscal package was expected during the current UPA regime, Ahluwalia told this newspaper, “This is it.”

He, however, admitted that more measures are needed for the next financial year as the economic crisis is not likely to end in the current one.
General elections are due in April-May.

Ahluwalia said the India Infrastructure Finance Company (IIFCL), which was earlier authorised to raise Rs 10,000 crore through tax-free bonds by March 31, 2009, for refinancing bank lending of longer maturity to infrastructure projects, can raise an additional Rs 30,000 crore in tranches through tax-free bonds over the next 18 months.
While the ongoing infrastructure projects are mainly for highways and ports for about Rs 25,000 crore, the future projects are estimated to cost about Rs 75,000 crore.

To facilitate access to funds for the housing sector, development of integrated townships would be permitted as an eligible end use of external commercial borrowings from multilateral or bilateral financial institutions. Besides, the Centre will work with state governments to encourage them to release land for low and middle income housing schemes.

Also, a special purpose vehicle (SPV) would be designated to channelise liquidity to non banking finance companies (NBFCs). The estimated liquidity potential through this window is Rs 25,000 crore.

As for the automobile sector, PSU banks are likely to provide a line of credit to NBFCs for purchase of commercial vehicles. And, an accelerated depreciation of 50% will be provided for commercial vehicles to be purchased between January 1 and March 31, 2009. As a one-time measure, states will be given support to purchase buses for their urban transport systems.

In addition, states would be allowed to make additional market borrowings of 0.5% of their gross state domestic product, amounting to Rs 30,000 crore for capital expenditure.

Another significant measure relates to appreciation of rupee against dollar since November 2008. The government has decided to restore the DEPB scheme rates to those prevailing prior to November 2008. And the DEPB scheme would be extended till December 31, 2009, to give the regime some stability. To help exporters, duty drawback benefits will be given on items like knitted fabrics, bicycles, agricultural hand tools, etc with retrospective effect from September 2008. To address procedural issues raised by exporters, government would constitute a committee under the chairmanship of the finance secretary.

To boost the liquidity demand across sectors, credit targets of PSU banks are being revised upwards. On a fortnightly basis, the government would monitor the provision of sectoral credit by PSU banks. State level meetings would also be held to oversee flow of credit to small and medium enterprises. Towards that end, the guarantee cover extended by the Credit Guarantee Fund trust would be increased to 85%, for a credit facility up to Rs 5 lakh.

source: Dnaindia

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