Seeking to reverse the recessionary trend, the government on Friday gave the economy a second stimulus by enabling the industry to borrow more from abroad and FIIs to invest more in the country, besides stepping up public spending.
The package, the last for the current financial year and announced in tandem with rate cuts by RBI, aims at providing much higher and cheaper funds in the economy along with additional expenditure by the Centre and the State to push demand in the country.
While allowing states to access market for borrowing about Rs 30,000 crore (Rs 300 billion) to meet additional expenditure, the package provides for liberalisation of External Commercial Borrowing norms and raising FII investment limit in rupee-denominated instruments to $15 billion from $6 billion now.
Focusing on countering the recessionary trends, the package also withdrew exemptions on countervailing duties on cement, TMT bars and structurals that were originally given to contain inflation.
Announcing the package, Deputy Chairman of Planning Commission Montek Singh Ahluwalia said special attention was being paid to housing sector, macro and micro industries and infrastructure sectors through a series of measures including provision for higher credit and greater liquidity for the non-banking financial companies.
With inflation down to manageable limits, the focus has clearly shifted to reviving industrial growth which took a beating under the impact of the credit crunch spawned by the global slowdown.
The government will allow development of integrated townships, access to ECBs with a view to giving a boost to the housing and construction sectors, which are especially facing severe pressure.
As a key measure to revive the economy, the package will facilitate funding of pending highways and port projects of about Rs 25,000 crore (Rs 250 billion).
The India Infrastructure Finance Company Limited (IIFCL) is being enabled to access additional Rs 30,000 crore (Rs 300 billion) by tax-free bonds to finance additional projects worth Rs 75,000 crore (Rs 750 billion) over the next 18 months.
The IIFCL bonds would be issued soon for raising first tranche of funds. Troubled exporters received a reprieve in the form of higher rates for tax refunds and a commitment that the flagship reimbursement DEPB scheme would be extended up to December 2009, the government said.
Specific sectors like knitted fabrics, bicycles, agricultural hand tools and some categories of yarn would get duty draw backs at enhanced rates.
The commercial vehicle manufacturers, who have been hit hard due to decline in sales, are expected to see demand revival with accelerated depreciation of 50 per cent on vehicles purchased between January-March this year.
Non-banking finance companies (NBFCs), which are generally active in funding commercial vehicles would be provided a line of credit by the public sector banks.
Boost for realty sector
In an effort to boost the cash- starved realty sector, the government on Friday allowed the developers of integrated townships to borrow funds from overseas and also asked states to release land for low- and middle-income housing schemes.
"GoI will work with state governments to encourage them to release land for low- and middle-income housing schemes," the government said. The announcement forms part of its second stimulus package to minimise the impact of global financial crisis.
Besides, the government also relaxed norms on external commercial borrowing (ECB) for dealing with the problem of liquidity crunch faced by the developer community. The government said "all-in-cost" ceilings on ECB would be removed by RBI.
"To facilitate access to funds for the housing sector, The 'development of integrated township' would be permitted as an eligible end-use of ECB, under the approval route of RBI," the government said.
Earlier, as part of the first stimulus package announced last month, the public sector banks lowered home loans up to Rs 20 lakh and the government recognised the housing sector as an important employment generating field.
The demand in residential segment has declined in the last six months on account of high interest rates on housing loans and steep rise in property prices in the last 2-3 years.
In recent months, though some realty developers announced housing projects for mid-income section of the society, due to high land costs, many projects could not take off.
Highlights of the first stimulus package