The Indian government on Friday unveiled second stimulus package to counter the effect of the global recession on Asia's third- largest economy in grip of slowdown including relaxation in commercial borrowings, increase in cap on FII investment in corporate bonds and an additional tax-free borrowing of up to Rs 30,000 crore to infrastructure lender IIFCL ( India Infrastructure Finance Company Limited )

According to latest report released by govt. body, in first fiscal stimulus package one there was Rs 10,000 crore of tax free bonds for India Infrastructure Finance Company Limited (IIFCL) and that has now been increased to about Rs 30,000 crore. There is a timeline of two years, 18-months and refinancing of Public-Private Partnership (PPP) projects etc.

IIFCL was incorporated on January 5, 2006, 2006, under the Companies Act 1956, as a wholly Government owned Company with an authorized capital of Rs. 2000 crore and paid-up capital of Rs. 1000 crore. Besides, the resource-raising program of the Company would have sovereign support, wherever required.

Govt. said, In order to give a boost to the corporate bond market, FII investment limit in rupee denominated corporate bonds in India has been increased from $6 bn to $15 bn. The most beneficiary sector of this package will be infrastructure and real estate companies, which are facing liquidity crunch.

The most disappointment outcome of this package was 20 lk cap, Hosing Sector and Public Sector banks both were asking for increasing 20 lakh cap to minimum 30 lakh cap that was been introduced in last fiscal package. But Planning Commission Deputy Chairperson Mr. MS Ahluvalia and the Finance Secretary said nearly 94% of home loans sanctioned are below the Rs 20 lakh bracket so it will not be hiked in this pack but they give a hint to increase it in next package.

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. NBFCs, dealing exclusively with infrastructure financing, would be permitted to access ECB from multilateral or bilateral financial institutions, under the approval route of RBI. Besides, ceiling on interest rates for such overseas borrowings has also been removed.

Credit targets of Public Sector Banks are being revised upward to reflect the needs of the economy in the present difficult situation. This will ensure flow of credit to the industry. The government will also closely monitor, on a fortnightly basis, the provision of sectoral credit by public sector banks.

For the export sector which has been hit by the recession in US economy, the government has extended the Duty Entitlement Passbook Scheme till December 31, 2009. Besides, duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn are being enhanced. These changes will take effect retrospectively from September 1, 2008. EXIM Bank which has obtained from RBI a line of credit of Rs.5000 crore and will provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian exporters at competitive rates.

To give a leg-up to steel and cement sectors, the government has brought back countervailing duty on TMT bars and structural cement. These duties were exempted to provided to contain inflation. Full exemption from basic customs duty on zinc and ferro alloys, which was also provided to contain inflation, is also being withdrawn.

To boost the housing sector, the centre will work with state governments to encourage them to release land for low income and middle income housing schemes.

To boost the automobile sector, states, as a onetime measure up to June 30, 2009, will be provided assistance under the JNNURM for the purchase of buses for their urban transport systems. Accelerated depreciation of 50% will be provided for commercial vehicles to be purchased on or after January, 2009 up to March 31, 2009.

The government is closely monitoring its spending to expedite the pace of expenditure for all schemes and programmes. Government will set up a fast track monitoring committee to ensure expeditious approval and implementation of central projects and chief ministers are being advised to do the same.

An official statement said the measures outlined above taken together with steps taken earlier constitute a substantial counter-cyclical stimulus in the current year and added that the government does not envisage any further measures in the current fiscal year.

"However, Government is aware that the measures required to provide an economic stimulus to the economy have to extend beyond the current financial year. Towards this end, it is finalizing Plan and Non-Plan expenditure that will be required in the next financial year to maintain the tempo," it said.

The Plan for the next year will include proposals for recapitalization of the public sector banks of the order of Rs 20,000 crore over the next two years. This will help to ensure that the banking system will not suffer from capital adequacy constraints in order to provide credit growth needed to sustain the economic momentum in 2009-10.

The liberalizing of the ECB route has been a long standing demand of real estate developers, so they are clearly happy whether the current market scenario will actually make this a cosmetic change or do a lot more than that, the question mark still remains but clearly happy on that move.

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