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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.
The government announced FISCAL STIMULUS PACKAGE:
Major tax cuts across the board to boost demand and allocated additional funds and incentives for exports, housing, textile and infrastructure to stimulate the economy due to global financial crisis.The package, coming on the back of fresh REPO and Reverse REPO cuts announced by the RBI on Saturday, includes a four per cent(4%) cut in ad-valoram duty across the board, to boost additional spending, besides enhanced credit for exporters, along with a Rs 10,000 crore mop up for India Infrastructure Finance Company.Import duty on Naptha for use in power sector as well as export duty on iron ore to be eliminated."In order to provide a contra-cyclical stimulus via plan expenditure, the government has decided to seek authorisation for additional plan expenditure of up to Rs 20,000 crore in the current year," the statement said, adding the total spending programme in the four months ending March was expected to be Rs 300,000 crore.As part of efforts to boost the housing sector, the public sector banks would shortly announce a package for home loan borrowers in two categories -- up to Rs five lakh and between Rs 5-20 lakh, the statement said, adding that additional measures would be taken, as necessary, to promote an accelerated growth trajectory.Attaching special significance to infrastructure development, the government authorised India Infrastructure Finance Co Ltd (IIFCL) to raise Rs 10,000 crore through tax- free bonds by March 2009 and said it would be permitted to raise further resources. this initiatives would support a PPP (Public-Private Partnership) programme of Rs 100,000 crore in the highways sector,"
Paying special attention to exports, the government decided to provide an interest subvention of two per cent up to March 2009 for pre and post-shipment export credit for labour-intensive exports like textiles, leather, marine products and SME sector. The concession is subject to a minimum rate of interest.Besides, it would provide an additional Rs Rs 1,100 crore for full refund of terminal excise duty/CST and another Rs 350 crore for export incentive schemes and a back-up guarantee of Rs 350 crore to ECGC (Export Credit Guarantee Corporation) for providing guarantee for exports to difficult markets and products.
The government plans to allocate the money, equivalent to 5 percent of gross domestic product, by March, it said in a release in New Delhi today. The Reserve Bank of India yesterday cut interest rates for the third time in less than two months. India said on Sunday it will seek approval for extra spending worth 200 billion rupees ($4 billion) as part of a plan to boost the economy and help it counter the global slowdown.
The government also announced a series of measures including duty cuts on several products, plans to boost home loan growth and allowing a state-run firm to issue tax free bonds worth 100 billion rupees to fund infrastructure projects.
COMMENTS:
INDRANIL PAN, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI:
"Obviously the monetary policy was not enough to provide a boost to the economy. The reduction in Cenvat will help boost consumption demand.
"The overall package is geared towards helping producers especially the export sector to tide over the difficult time of the global credit crunch.
"While tax reductions can be effective immediately, for the overall package to work itself into the economy may take some time."
``This is huge and it reflects the seriousness of the global economic crisis,'' said Sonal Varma, a Mumbai-based economist at Nomura International Plc in Mumbai.``This also shows there is nothing like decoupling in an integrated world - India is getting affected by both global trade and financial channels.''
The unprecedented spending comes after Mumbai, India's financial capital, came under attack from terrorists last month and as a global credit crisis cuts off access by Indian companies to international funds.
SARANG WADHAWAN, MANAGING DIRECTOR, HDIL :
"What the RBI announced yesterday was good and the government package hasn't got much relevance to commercial real estate. We do feel that the housing loan subsidy towards 2 million rupees budget (houses) works.... I think a direction from the RBI towards banks to start lending, that will actually ease real estate. For us, none of our flats run in the 2 million rupees budget. Unless you're talking of really low income housing it really doesn't provide much...I think commercial real estate needs a lot more impetus.
SHERIAR IRANI, CO-RESEARCH HEAD, JM FINANCIAL :
"On the face of it the amounts don't seem to be very large, especially that for infrastructure. I think it will provide a boost to individual sectors such as textile, gems etc. The market may react in a sector-wise way. I don't see the market reacting as a whole."
Global Impact :
Governments around the world are spending to revive growth. China unveiled a 4 trillion yuan ($582 billion) package in November and President-elect Barack Obama plans to make the ``single largest new investment'' in roads, bridges and public buildings since the 1950s to lift the sagging U.S. economy.
India, where domestic consumption makes up 60 percent of the GDP, is facing the impact of the global recession because its integration with the world economy has been rising.
WASHINGTON: The US government is expected to shortly announce a list of about 20 banks in the next round of companies receiving capital injections under a $700 billion rescue package, according to a source familiar with the U.S. Treasury Department's thinking.
The Treasury in recent days has detailed a plan to directly inject $250 billion of capital into U.S. banks in exchange for preferred shares. Nine of the largest U.S. banks were essentially arm-twisted last week into signing on for the first $125 billion in capital infusions.
Neel Kashkari, Treasury's interim manager for the rescue program, told lawmakers on Thursday that more banks are expected to receive capital infusions within a few weeks, meaning that Treasury is expected to announce those banks in the coming days.
The announcement of an additional 20 to 22 banks receiving capital is expected as soon as today, the source said.
Data compiled from Economics Times
The US government lent insurance major AIG an additional US $37.8bn. The insurer was seized last month and lent US $85bn. The company's executives, meanwhile, got a rough ride in Congress for spending US $440,000 at a fancy resort the week after AIG was bailed out.
Bank of America reached a settlement with those states, including California and Illinois, that had brought lawsuits against the lending practices of Countrywide Financial, a beleaguered lender bought by the bank this year. The settlement rejigs the mortgages of around 400,000 homeowners and could cost up to US $8.6bn. Separately, Bank of America raised US $10bn in a share sale and said it would halve its dividend.
SAP, the world's largest maker of software for business, said it had experienced a very sudden and unexpected drop in demand. And figures showed that the rate of growth in revenue from online advertising in the US in the first half of 2008 was considerably lower than in the same periods in 2007 and 2006. IBM, however, reported a 22% increase in quarterly profit.
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Media Report : A media report stating that one of the UK banks Bradford & Bingley is soon going to be nationlised. "Officials from the Treasury and the Financial Services Authority (FSA) have been in talks with executives from the bank in a bid to secure its future," BBC said. On Friday , stock quoting to his lowest rates on History . Bradford & Bingley has seen erosion of its share price over 90 per cent this year and it is down more than 60 percent since the beginning of the month. The bank has high dependence on expensive wholesale funding raising doubts over its prospects as an independent lender.
Quoting Bradford & Bingley spokesman Tony McGarahan, BBC said discussions were taking place and an announcement would be made before the stock market opened tomorrow. Bradford & Bingley would be the second British bank to be nationalised this year after Northern Rock, which came into public ownership in February.
BBC said the bank would be nationalised using the special legislation the Treasury had put through when it took Northern Rock into public ownership earlier this year. The measure is expected be announced on Sunday night or Monday morning.
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Rescue Plan - U.S. Congress will pass a law on Sunday to create a fund of $700 billion to buy bad debts from the hosted banks aiming to minimise the Credit Crisis which is a accused for Global economy mahyem. U.S. congress leaders will talk on Sunday Morning to finalise the map for $700 billion fund. A Congressman stated that this is the worst financial crisis since the Great Depression.Nancy Pelosi , speaker of House of Representatives said "We've made great progress", "We have to get it committed to paper so we can formally agree." Treasury Secretary Henry Paulson had lobbied hard for the package, which would rank as the largest bailout in U.S. history, saying the sweeping program was needed to keep credit markets from grinding to a halt under the burden of bad mortgage debts. Remeber US forth largest bank Lehman Brothers , third largest bank Washington Mutual ( WaMu) is washed from system. Government Purchased the Mortgage Lender Fannie Mae and Freddie Mac and Insurance gaint AIG due to this Sub Prime Crisis. The Carolina based Wachovia is also on the queue.. and government status helped Morgan Stanly and GoldMan Sachs to remain in market.
Congress has been racing to reach an agreement before Asian markets open on Monday to avoid a repeat of last week's white-knuckle volatility.It was unclear when the House and Senate might vote on the legislation or whether last-minute hitches might arise.U.S. President George W. Bush spoke with House Speaker Nancy Pelosi on Saturday evening about the negotiations and news of the deal was welcomed at the White House.
"We're pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy," White House spokesman Tony Fratto said. At one point, lawmakers consulted by phone with billionaire investor Warren Buffett, who last week invested $5 billion in Goldman Sachs and also warned that markets were in a "dangerous situation" and on the verge of breaking down.
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