Government unveils stimulus package

Across-the-board
4 per cent cut
in Cenvat
Package aims to revive various crucial sectors
NEW DELHI: Unveiling the much-awaited stimulus package to shore up various sectors of the economy from the global downturn, the government on Sunday effected an across-the-board 4 per cent cut in Cenvat to bring down the prices of cars, cement, textiles and other products, and earmarked an additional Rs. 20,000 crore for infrastructure, industry and export sectors for the current fiscal.
In what may be dubbed as a mini-budget of sorts to lessen the impact of the global slowdown and recession in the West on the Indian economy, the package, while entailing a revenue loss of Rs 8,700 crore in the remaining four months of 2008-09, seeks to revive various crucial sectors such as housing, exports, automobile, textiles and small and medium enterprises (SMEs).
In an all-encompassing measure, the Cenvat on all products — barring non-petroleum goods — have been reduced from 14, 12 and 8 per cent to 10, eight and 4 per cent for various categories.
Full exemption from basic customs duty has been effected on naphtha to provide relief to the power sector. While the export duty on iron ore fines has been withdrawn, the levy on export of iron lumps has been cut from 15 to 5 per cent.
Apparently, the package, drawn up at the instance of Prime Minister Manmohan Singh, who also holds the Finance portfolio, seeks to boost power, exports, housing, auto, SMEs and infrastructure sectors through additional funding.
Tax-free bonds
The 10-point package, with significant incentives for the sectors affected by the slowdown, has also permitted India Infrastructure Finance Company Ltd. to raise Rs. 10,000 crore through tax-free bonds by March as part of the exercise to support the Rs. 1,00,000-crore highways development programme.
Briefing journalists here on the package, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: “The market forces would compel manufacturers in a competitive environment to bring down prices and pass on tax benefits to customers.”
He pointed out that as part of steps to create demand in the economy, which was expected to grow by over 7 per cent, “the total spending programme in the balance four months of the current fiscal year, taking Plan and non-Plan expenditure together is expected to be Rs. 3,00,000 crore.”
Close watch
Mr. Ahluwalia stressed that the government was keeping a close watch on the evolving economic situation and “will not hesitate to take additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity.”
An official statement said: “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.”
It also noted that monetary measures effected by the Reserve Bank of India were being “supplemented by fiscal measures designed to stimulate the economy. In recognition of the need for a fiscal stimulus the government had consciously allowed the fiscal deficit to expand beyond the originally targeted level.”
“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.