India’s, fiscal, stimulus, package

US has sent stimulus check’s to their citizens when the economy was slowing down. It has announced several bailout’s when the banks were going bust. There was a $700 billion bailout fund and $700 billion more to come. China has its $600 billion bailout. Most of the European countries had their own bailouts or stimulus packages. But not India.

That has changed today. India got its stimulus package and pretty big one. Rs 20,000 crore booster does is announced to shore up the economy. This will come in the form of tax cuts and additional spending. This is in addition to the interest cuts and petrol rate cuts announced in the last 2 days. The norms for external commercial borrowing for companies who are planning to raise money overseas are already relaxed.

Fiscal deficit will grow substantially and will continue to 2009. But, that is the price we have to pay for the growth to sustain or not letting the economy to slow. This package is much better than the packages already announced like the loan waivers, oil and fertilizer bonds.

The new stimulus package is a 28000 crore direct impact on the budget.

Highlights of the stimulus package :

1. The government will be spending additional 20000 crores for the current fiscal. It will also utilize the current expenditure as per the budget. This would be  total spend of 300000 crores for the balance 4 months of Indian fiscal year. Another package might be need for next year.
2. Ad-valorem CENVAT rate is  cut by 4% across the board. This applies to all products except petroleum products. <> 8700 crore loss for the government because of this. Central value added tax is the centralized tax laid on the manufacturing activities to reduce the tax burden on the end users. This is to reduce the double taxation on a particular product which goes into manufacturing a product.
3. Textiles - 1400 crore allocated to clear backlog of TUF scheme. Textile Handicraft items will be included under Vishesh Krishi and Gram Udyog Yojana
4. Exporters to get a 200 bps or 2%  interest rate cut till March 31, 2009. There are other goodies for exporters.
5. No import duty on Naptha products for power projects
6. Export duty on iron ore fines is removed and is reduced to 5% for Iron ore lumps.
7. Government departments can replace their vehicles to boost economy. This would be fun. I guess from Skoda’s and CR-V’s they will upgrade to Benz. That would really boost the spending
8. India Infrastructure Finance Company (IIFCSL) will raise 10,000 crores through tax free bonds till 31st March, 2009. This would be used to refinance the infrastructure  projects under PPP model. Support the 100,000 crores spend on the highway projects. 60 road projects will be cleared.
9. SME - 7000 crore refinance facility to SIDBI either directly are via banks, NBFC’s, SFC’s
10. collateral free lending raised to 1 crore from the current 50 lakhs for MSME
11. lock-in period of loans reduced to 18 months from 24 months. This would encourage banks to cover more loans.
12. Housing - 4000 crore refinance facility for National Housing Bank. Planned expenditure to be increased for Indira Awas Yojana
13. Package from PSU banks in 2 categories: up to 5 lakhs and 5 lakh to 20 lakhs.

After effects of the stimulus package :

1. ICICI cuts home loan rates by 1.5% for home loan rates below 20 lakh
2. Shree Cements will be reducing the price of cement bag by 6 or 7 rupees
3. Yes Bank will be reducing the interest rate.
4. Maruti Suzuki has announced a 4% rate cut already.

I am sure many of the readers will be cheering about the housing loan rate cuts. But, my favorite one is the government departments replacing their vehicles.

What else do you like in the stimulus package?

*All figures are in Indian rupees except for the first paragraph.

*Image source : The Joy of the Mundane @ flickr