Indian Govt. announces Rs. 3 lac crore bailout package

In a bid to minimise the impact of the global economic slowdown on the Indian economy, the Government on Sunday unveiled a “multi-dimensional” fiscal stimulus package that is expected to help boost output across sectors and stoke growth.

Highlights of the package include an additional Plan expenditure of Rs 20,000 crore by the government during the remaining four months of 2008-2009, a cut of 4 per cent Cenvat across the board, two per cent subvention of interest to make credit attractive for textile, leather, handlooms and other labour-intensive exports, besides larger credit guarantee for medium, small and micro enterprises.
Recognising the housing sector’s potential to boost employment and demand for critical sectors, the government said public sector banks will shortly announce a package for borrowers of home loans in two categories: up to Rs 5 lakh and Rs 5 lakh-Rs 20 lakh.
The Planning Commission deputy chairman, Mr Montek Singh Ahluwalia, said the package will “minimise the impact of weak global economy on the Indian economy,” and help achieve a seven per cent growth rate.
Relaxing its fiscal deficit targets, the government has decided to seek Parliament’s approval for additional Plan expenditure of upto Rs 20,000 crore in the current year. With the additional expenditure, the government’s total spending in the balance period of the current fiscal year, taking Plan and non-Plan expenditure together, is expected to be Rs 3,00,000 crore.
The government believes the economy will continue to need this stimulus in 2009-2010 also and a substantial increase in Plan expenditure will be required in the next financial year.
As an immediate measure to encourage additional spending, an across-the-board cut of 4 per cent in the ad valorem Cenvat rate will be effected for the balance of the financial year. This will cover all products, other than petroleum and those where the current rate is less than 4 per cent.
To boost exports, interest support of two per cent is to be provided for labour intensive sectors like textiles, handicrafts and handlooms. Additional allocation of Rs 1,450 crore has been made towards various incentives and refund of excise duty, besides giving a guarantee of Rs 350 crore for difficult market and product exports.
For small and micro enterprises, the limits under the credit guarantee scheme have been doubled to Rs 1 crore. The lock-in period for loans covered under the existing credit guarantee scheme is also being reduced from 24 to 18 months to encourage banks to extend more loans under the scheme.
In the textiles sector, an additional allocation of Rs 1,400 crore will be made to clear the entire backlog in Technology Upgradation Fund Scheme. To support financing of infrastructure projects, the India Infrastructure Finance Company Limited has been authorised to raise Rs 10,000 crore through tax-free bonds by 31 March 2009. In an incentive for the automobile sector, government departments are also being allowed to replace older vehicles within the allowed budget, in relaxation of extant economy instructions.