The Hindu Business Line : UPA’s final booster dose for economy

Enhancing liquidity: The Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, and the Finance Secretary, Mr Arun Ramanathan, at a press conference in the Capital on Friday.

Our Bureau

New Delhi, Jan. 2 In their final stimulus package for 2008-09, the UPA Government and the Reserve Bank of India took wide ranging measures to address the problems in the monetary, infrastructure and export sectors.

In addition to the RBI’s move of reduction in policy rates and cash reserve ratio (CRR) to further enhance liquidity in banking system, the extant policy on external commercial borrowing (ECB) was further liberalised. Foreign institutional investors (FIIs) have been allowed to invest up to $15 billion in corporate bonds, up from the current $6 billion.

The ‘all-in-cost’ ceilings on ECBs have been removed for borrowings under the RBI’s approval route. The housing sector has also got some relief, with ECB access for the development of integrated township.

The package also gives a boost to the non-banking finance companies (NBFCs). Public sector banks (PSBs) will now provide a line of credit to NBFCs specifically for purchase of commercial vehicles. NBFCs dealing exclusively with infrastructure financing can access ECBs from multilateral or bilateral financial institutions, after RBI approval.

A special purpose vehicle (SPV) would be designated shortly to provide liquidity support against investment grade paper to NBFCs, which potentially opens a Rs 25,000-crore window.

Briefing reporters on the stimulus package, the Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia, maintained that Government does not envisage any further measures in the current fiscal.

He also said that between now and March 2009 there would be significant expansion in bank credit. The Finance Ministry would soon revise upwards the credit targets of PSBs to reflect the needs of the economy in the present difficult situation.

The Finance Secretary, Mr Arun Ramanathan, added that plans for the next year will include recapitalisation of PSBs to the tune of Rs 20,000 crore over the next two years.

“The recapitalisation will help to ensure that the banking system will not suffer from capital adequacy constraints in order to provide credit growth needed to sustain economic momentum in 2009-10,” Mr Ramanathan said.

Asked to put a number on the cost of the stimulus package, the Cabinet Secretary, Mr K.M. Chandrashekhar, said that it would be difficult to give a specific number. However, Mr Ramanathan said that the anticipated revenue foregone on account of stimulus packages till date this fiscal was to the tune of Rs 40,000 crore.

The stimulus package also had some goodies for the States, which are facing constraints in financing expenditure because of slower revenue growth. States will be allowed to raise in the current financial year additional market borrowing of 0.5 per cent of their Gross State Domestic product, amounting to Rs 30,000 crore, for capital expenditure.

On the infrastructure front, India Infrastructure Finance Company Ltd (IIFCL) will be allowed to access an additional Rs 30,000 crore in tranches through tax free bonds. This would help fund additional projects of about Rs 75,000 crore at competitive rates over the next 18 months.

IIFCL, which was earlier authorised to raise Rs 10,000 crore through tax free bonds by March 31, 2009, will be accessing the market next week for raising the first tranche of the amount.

On the exporters’ side, the Government has decided to restore duty entitlement passbook (DEPB) rates to those prevailing prior to November 2008. Besides the DEPB scheme would now be extended till end December this year.

Also, duty drawback benefits on certain items including knitted fabric, bicycles and specified categories of yarn are being enhanced.

The other measures to counter recessionary trends include withdrawal of exemption from countervailing duty (CVD) on TMT bars and structurals. The exemption on CVD and special CVD on cement has been withdrawn. Also, full exemption from basic customs duty on zinc and ferro alloys is also being withdrawn. The exemptions were earlier introduced to contain inflation.

To give a boost to demand for commercial vehicles, an accelerated depreciation of 50 per cent is to be provided for vehicles purchased between January and March 2009.

In order to enhance the flow of credit to micro enterprises, the Government has decided to increase the guarantee cover extended by credit guarantee fund trust to 85 per cent for credit facility up to Rs 5 lakh. This will benefit about 84 per cent of the total number of accounts accorded guarantee cover.

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