Indian Government announces additional measures for stimulating the economy

January 02, 2009: Indian Government has taken a number of steps since October 7, to minimize the impact of the global financial crisis on the Indian economythe most recent being the measures announced on December 07, 2008. These included:

(i) Additional plan expenditure upto Rs. 20,000 cr. in the current year mainly for critical rural, infrastructure and social security schemes such as Pradhan Mantri Gram Sadak Yojana (PMGSY), Jawaharlal Nehru National Urban Renewal Mission (JNNURM), National Rural Employment Guarantee Scheme (NREGS), Indira Awas Yojana, Accelerated Irrigation Benefit Programme and National Social Assistance Programme (NSAP).

(ii) An across-the-board cut of 4% in ad-valorem Cenvat rate except for petroleum products.

(iii) Several other measures to support exports, housing, Micro, Small & Medium Enterprises (MSME) and textile sectors.

(iv) Authorising India Infrastructure Finance Company Limited (IIFCL) to raise Rs. 10,000 cr. to refinance bank lending for infrastructure projects.

Subsequently, other measures have also been taken such as removal of ban on export of cement.

2. Additional steps are being taken on the monetary, credit and fiscal front to further strengthen the contra-cyclical stance of policy. The Reserve Bank has today announced a set of measures. In addition, with a view to further liberalizing the policy on External Commercial Borrowing (ECB), the Government and the RBI have decided:

(a) The ‘all-in-cost’ ceilings on such borrowing would be removed, under the approval route of RBI;

(b) To facilitate access to funds for the housing sector, the ‘development of integrated townships’ would be permitted as an eligible end-use of the ECB, under the approval route of RBI;

(c) NBFCs, dealing exclusively with infrastructure financing, would be permitted to access ECB from multilateral or bilateral financial institutions, under the approval route of RBI.

(d) In order to give a boost to the corporate bond market, FII investment limit in rupee denominated corporate bonds in India would be increased from US $ 6 bn to US $ 15 bn.

The decisions at points (a) to (c) would be reviewed after June 30, 2009.

3. The flow of credit to the economy will be further enhanced by the following:

(i) An SPV will be designated shortly to provide liquidity support against investment grade paper to Non Banking Finance Companies (NBFCs) fulfilling certain conditions. Details will be announced separately. The scale of liquidity potentially available through this window is Rs.25,000 crores.

(ii) An arrangement will be worked out with leading Public Sector Banks to provide a line of credit to NBFCs specifically for purchase of commercial vehicles.

(iii) 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, on a fortnightly basis, the provision of sectoral credit by public sector banks.

(iv) Special monthly meetings of State Level Bankers’ Committees would be held to oversee the resolution of credit issues of micro, small and medium enterprises by banks. Department of MSME and Department of Financial Services will jointly set up a Cell to monitor progress on this front. Matters of MSMEs remaining unresolved with the Banks- SME Helpline for more than a fortnight may be brought to the notice of this Cell.

(v) Recently the guarantee cover under Credit Guarantee Scheme for micro and small enterprises on loans was extended from Rs.50 lakh to Rs.1 crore with a guarantee cover of 50%. In order to enhance flow of credit to micro enterprises, it has been further decided to increase the guarantee cover extended by Credit Guarantee Fund Trust to 85% for credit facility upto Rs.5 lakh. This will benefit about 84 per cent of the total number of accounts accorded guarantee cover.

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