India cuts value added tax, unveils package to pump prime economy (Roundup)December 7th, 2008 - 8:23 pm ICT by IANS
New Delhi, Dec 7 (IANS) A day after India’s central bank cut key rates, the government Sunday unveiled a Rs.300,000-crore (Rs.3,000-billion/$60-billion) fiscal package with specific measures for various sectors to pump prime the economy and contain the adverse impact of the global financial crisis.A four percent cut in central value-added tax to help corporate India in general and sops for exporters, housing, infrastructure and textiles sectors were all part of the package to stimulate growth, which was personally overseen by Prime Minister Manmohan Singh, who now also holds the finance portfolio.
The measures immediately resulted in several automobile companies cutting prices by four percent, as the reduction in value-added tax alone will ensure that every product becomes cheaper by at least four percent.
“The government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem,” an official statement said, unveiling the package.
The measures Sunday come a day after the central bank reduced its key rates and eased the norms for accessing overseas funds to reduce the cost of borrowing for commercial banks and signal them to lower interest rate for India Inc.
The prime minister also held consultations with Home Minister P. Chidambaram (who previously held the finance portfolio), Planning Commission Deputy Chairman Montek Singh Ahluwalia and Commerce Minister Kamal Nath before finalising the package, officials said.
“There is a significant effort to give stimulus on expenditure side, especially on what expenditure in infrastructure is possible this year,” said Ahluwalia, soon after the unveiling of the package.
“In addition to these, there is a very strong effort, especially to see that the expenditure that is budgeted for actually takes place. Expenditure tends to be under-utilised,” he said at a press conference.
“Many other incentives are underway,” he said, adding: “Growth in the Indian economy will be lower. But we will ensure that every step is taken to minimise the impact of the global crisis.”
As a first step, the United Progressive Alliance (UPA) government will seek parliament’s mandate for an additional allocation of Rs.200 billion to take the authorised plan and non-plan expenditure to Rs.3,000 billion in the remaining months of the fiscal. The parliament session is slated to begin Dec 10.
“The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year,” the statement said.
The measures for exporters, who saw a decline in shipments in October for the first time in five years, include interest support of two percent for labour intensive sectors like textiles, handicrafts and handlooms.
This apart, additional allocation has been made towards various incentives for exporters, guarantee of export credit, full refund of service tax to foreign agents and refund of service tax under the duty drawback scheme.
Instructions have also been given to state-run banks to unveil a scheme under which borrowers for houses under two categories - up to Rs,500,000 and up to Rs.2 million - will get special incentives.
“Housing is a potentially very important source of employment and demand for critical sectors, and there is a large unmet need for housing in the country, especially for middle and low income groups,” the statement said.
For small and micro enterprises, the limits under the credit guarantee scheme which gives access to working capital and other financial needs have been doubled to Rs.10 million.
The lock-in period for loans covered under the existing credit guarantee scheme is also being reduced from 24 to 18 months to encourage banks to extend more loans under the scheme, the statement said.
The government has also authorised the India Infrastructure Finance Co Ltd (IIFCL) to raise Rs.100 billion ($2 billion) through tax-free bonds to support financing of government-financed infrastructure projects.
“These funds will be used by IIFCL to refinance bank lending of longer maturity to eligible infrastructure projects, particularly in highways and port sectors.”
In a push for the automobile sector, government departments have been allowed to replace vehicles within the allowed budget, with a major relaxation in the time-consuming procedures.
This apart, import duty on naphtha for use by the power sector is being reduced to zero, while export duty on iron ore fines will be eliminated, and reduced to five percent for lumps.
“The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity,” the statement said.
Tags: automobile companies, corporate india, finance portfolio, fiscal package, global financial crisis, kamal nath, manmohan singh, montek singh ahluwalia, p chidambaram, prime minister manmohan singh