India unveils second fiscal package to spur growth


New Delhi : The Indian government Friday announced its much-awaited second fiscal stimulus package with sector-specific steps to counter the impact of global slowdown on the country’s economy, including the doubling of cap on foreign funds to invest in bond markets.

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The package came soon after the central bank cut the reverse-repurchase and the repurchase rate by 100 basis points each while reducing the cash reserve ratio (CRR) by 50 basis points, to reduce bring down the cost of borrowings.

The measures, unveiled by Planning Commission Deputy Chairman Montek Singh Ahluwalia, include further access to Rs.30,000-crore (Rs.300 billion) worth of tax-free bonds to India Infrastructure Finance Co and accelerated depreciation of 50 percent to new cars bought till March 31.

Exporters, too, will benefit with an extension of the duty-entitlement passbook (DEPB) scheme and enhanced duty drawback benefits on items like knitted fabrics, bicycles, farm hand tools and some categories of yarn.

The government also decided to set up a holding company, called special purpose vehicles, to provide liquidity support to non-banking finance companies that are credit-worthy and meet some conditions.

“The scale of liquidity potentially available through this window is Rs.25,000 crore (Rs.250 billion),” said Ahluwalia, who briefed reporters here, after it was approved by Prime Minister Manmohan Singh.

“Credit targets of public sector banks are being revised upward to reflect the needs of the economy in the present difficult situation. Government will closely monitor the provision of sectoral credit by public sector banks.”

The plan panel chief said that in order to give a boost to the corporate bond market, foreign institutional investment limit in rupee-denominated securities would be increased from $6 billion to $15 billion.

This apart, the realty industry can benefit from the permission to use external commercial borrowings if intended for the development of integrated townships, while enhancing the level of credit for micro units.

Apart from the higher depreciation benefit, the automobile industry can benefit from an arrangement that is being worked out with leading public sector banks to provide a line of credit to lending institutions to finance commercial vehicles.