On December 7th, the government disclosed the fiscal stimulus package to support various sectors of the economy that are been hit hard by the global slowdown. The measures announced by the government mainly include additional spending and excise duty cuts aimed at enhancing consumption.
The government has declared an across-the-board 4% cut in excise duty to bring down the prices of cars, cement, textiles and other products and an additional expenditure of Rs 20,000 crore for various sectors. Excise duty cut amounting to Rs 8,700 crore and benefits worth Rs 2,000 crore for exporters are made to stimulate demand in the sectors such as housing, exports, automobile, textiles and small and medium enterprises (SMEs).
Excise duty has been reduced under various categories expect for non-petroleum goods from 14%, 12% and 8% to 10%, 8% and 4% respectively. In order to boost the power sector, free import duty has been allowed on naphtha. The excise duty on export of iron lumps has been cut to 5% from 15% and on iron ore fines the levy has been withdrawn.
The stimulus package, which was approved by Prime Minister Manmohan Singh, has also allowed India Infrastructure Finance Company Ltd. to raise Rs. 10,000 crore through tax-free bonds by March, 2009.
Commenting on the fiscal measures, 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."
The government feels that the fiscal stimulus would ensure an economic growth of 7% as measures taken by the government along with the key policy rates cut by the RBI is likely to enhance demand for the industrial products. "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," said Mr. Ahluwalia.
He further added that "the package will minimize the impact of weak global economy on the Indian economy" and also the government will keep track of 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."
The fiscal measures by government complement the steps taken by RBI that aim towards a south movement of lending rates and enhanced credit to the SME and real estate sector.
The monetary measures are "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," added the statement.
Moves taken by both RBI and Government have been initiated to gear up the economy from a painful slowdown.
Source : Rupee Times