India plans a US$4bln economic stimulus plan

08-Dec-08
After rate cuts, India plans to boost its economy with a US$4 bln spending boost. This extra spending during this fiscal year is a package to revive fading economic growth hit by the global meltdown and to sustain consumer confidence that has taken a thumping since the terror attacks on Mumbai. The overall package is geared towards helping producers, especially the export sector to overcome the difficult times. The central bank has slashed key interest rates to keep credit flowing. The government is also scrapping import duty on naphtha for the power sector and export duty on iron ore fines, letting a state-run infrastructure firm issue tax-free bonds worth Rs 100 bln (US$2 billion) and cutting a central valued-added tax rate by four percentage points. The Government plans to allocate more funds for incentives on exports and provide an extra Rs 14 bln for modernising the textile industry. Total spending in the final 4 months of the fiscal year ending in March would be around Rs 3 trillion (US$106 bln), including the additional Rs 200 bln it is seeking from parliament. Driven by largely domestically driven growth and impressive 9% growth recorded in fiscal 2008, India had hoped to avoid the worst of the global financial crisis. But the country was faced with problems such as high borrowing costs, deteriorating overseas demand, paralysis of its lending markets. This could get growth down from the earlier forecast 7% down by another point in 2009-10. Following are the highlights of the fiscal stimulus package : - Plan, non-plan expenditure of Rs.300,000 crore (US$60 bln) in 4 months - Parliament nod to be sought for Rs.20,000 crore more toward plan expenditure - Across-the-board cut of four percent in the ad valorem central value-added tax - Interest subvention of two percent on export credit for labour intensive sectors - Additional allocations for export incentive schemes - Full refund of service tax paid by exporters to foreign agents - Incentives for loans on housing for up to Rs.500,000, and up to Rs.2 mln - Limits under the credit guarantee scheme for small enterprises doubled - Lock-in period for loans to small firms under credit guarantee scheme reduced - India Infrastructure Finance Co allowed to raise Rs.100 bln through tax-free bonds - Norms for government departments to replace vehicles relaxed - Import duty on naphtha for use by the power sector is being reduced to 0 - Export duty on iron ore fines eliminated - Export duty on lumps for steel industry reduced to 5%
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