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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.
India's central bank unexpectedly cut interest rates for the second time in two weeks and reduced the amount of money lenders must hold in reserve in a bid to protect the economy from the global slowdown.
The Reserve Bank of India lowered its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and cut the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.
The steps signal a U-turn from the Reserve Bank's policy stance just a week ago, when Governor Duvvuri Subbarao said a ``heightened vigil'' was needed to fight inflation. The U.S. Federal Reserve, the Bank of Japan and other central banks also slashed borrowing costs this week in an attempt to prevent a global credit crunch from pushing the world into recession.
``This is a strong message that growth has become the central bank's priority,'' said Sujan Hajra, chief economist at Anand Rathi Securities Ltd. in Mumbai. ``He has room to cut rates because global interest rates are coming down as well, and so the risk of a further weakening of the rupee is limited.''
Subbarao, who until last week placed equal emphasis on growth and inflation, said Oct. 25 he is concerned a weaker rupee may raise import costs and stoke inflation.
India's currency, which has fallen 20 percent since January, climbed 0.4 percent to 49.4575 per dollar from 49.675 on Oct. 29.
Growth `Moderation'
The Bank of Japan yesterday cut its key overnight lending rate by 20 basis points to 0.3 percent after the Fed three days ago lowered its target rate for overnight loans to 1 percent, matching a half-century low. Norway, China, Taiwan and Hong Kong also trimmed their benchmark rates this week.
India's decision to lower borrowing costs was taken ``in view of the ebbing of upside inflation risks and also to address concerns relating to the moderation in the growth momentum,'' the central bank said today.
Lower inflation has given Governor Subbarao, in the job for less than two months, more room to lower borrowing costs to stimulate growth. Inflation in India has dropped below 11 percent for the first time since May.
Wholesale prices rose 10.68 percent in the week to Oct. 18 from a year earlier after gaining 11.07 percent in the previous week. Economists had expected a 10.80 percent increase.
The central bank last week reduced its forecast for growth in Asia's third-largest economy to as low as 7.5 percent from 8 percent in the year to March 31.
Credit Squeeze
``It's a good set of measures that addresses the most pressing need of the hour, which is to ease liquidity constraints in the system'' and support growth, said Arvind Sampath, head of interest-rate trading at Standard Chartered Plc in Mumbai.
India's money-market rates have more than tripled in the past week, in contrast to the rest of Asia where the rates at which banks lend to each other has been declining.
The overnight call rate in India touched 21 percent yesterday. India's 10-year bonds gained, heading for their best month in almost a decade, on speculation policy makers will be forced to step up efforts to boost cash with banks and ease a credit squeeze.
Today's cut in the cash reserve ratio, the fourth in the past month, will infuse 400 billion rupees ($8 billion) into the financial system, the central bank said. Before today, the bank lowered the ratio by 2.5 percentage points in the past month.
The Reserve Bank also reduced for the first time in 11 years the statutory liquidity ratio, the amount of deposits that lenders need to invest in government debt or bonds of state-run companies, by one percentage point.
``This kind of fund injection is required to bring in stability in the financial market,'' said Jayesh Shroff, who helps manage about $6 billion at SBI Asset Management Co. ``The system has been under stress because of liquidity shortfall.''
Cash dried up in India's banking system as overseas investors pulled out $12.7 billion from India's stock markets.
Article orignally posted @ Bloomberg.com
Arcelor Mittal : The world's largest steel maker, said on Thursday it will shut down its blast furnace number six at Seraing in Belgium until at least the end of February, Belgian media reported.
Public broadcaster RTBF said the move, which comes only eight months after the furnace was reopened, was due to the financial crisis and a decrease in demand for steel.
A spokesman for ArcelorMittal in London said he was unable to comment immediately on the report, which said ArcelorMittal had already taken similar steps at seven units in Europe.
RTBF said the firm preferred to decrease production in the face of a fall in the global demand for steel rather than reduce prices. It said the closure of the blast furnace would lead to layoffs, but not dismissals.
ArcelorMittal said earlier it was reviewing its expansion programme due to the economic downturn.
"ArcelorMittal's growth strategy remains unchanged," a spokesman said in a statement, adding, "However, the current market situation is prompting us to check the order of priority to be assigned to our different growth projects. We are currently reassessing these priorities."
Further details could follow when ArcelorMittal reports third-quarter results on Nov. 5.
Thursday's Financial Times reported that the company's eight-year $35 billion expansion plan was under review, including its $20 billion project for two new plants in India, on which work could be put back to 2012-2015.
The ArcelorMittal spokesman declined to quantify the size of the company's expansion plans.
Chairman Lakshmi Mittal said in September that the cost of the India project was running beyond $20 billion because of delays in securing regulatory approvals.
ArcelorMittal weathered the initial phase of the financial crisis as steel demand and prices were strong, but the company's shares have dropped 72 percent since their peak on June 6 as the commodity boom ended.
The company has already announced a 15 percent cut in European output as its main customers — the construction and the car industries — see sales slip.
Trade union representatives in France said management at the Fos-sur-Mer plant had told workers that it would reduce output and asked workers to take vacations of up to 16 days from November 1 and December 31. One furnace will cease work until the end of January, said Alain Nougue, a delegate from the CGT.
Another steel plant at Florange in eastern France would also stop output for the month of December, Jean-Marc Verin of the CFDT union said.
In Belgium, local press said workers had been told that ArcelorMittal plants at Genk and Chatelet would cease production for four weeks at the end of the year while facilities at Seraing and Ghent would decrease output levels.
French newspaper Le Figaro quoted French trade union officials as saying 13 European plants would temporarily stop work — including three in Germany. ArcelorMittal refused to comment on the reports.
European steelmakers warned Monday they are facing a difficult market climate as demand dries up and rival steel imports from China rise.
The Eurofer association which counts ArcelorMittal as a member said the market was oversupplied and might only rebound at the end of 2009.
Business and consumer confidence in the 15-nation area slipped to a 15-year low on Thursday as companies worried about falling sales and said they expected to employ fewer people.
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