Second round of Fiscal Stimulus package on the floor
By Joseph Samson
Dec 26, 2008
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The Indian Government is likely to announce another set of measures to stimulate the economy that is facing the impact of global financial turmoil. The fresh stimulus package would include more fiscal measures that will provide greater liquidity in the system and protect the domestic industry from cheap imports, said Kamal Nath, Commerce and Industry Minister of India.

"We are looking at various options...the Reserve Bank of India is looking at liquidity issues where credit policy is concerned. We have to guard against many things, at the same time the government has to be proactive in ensuring that the growth is much ahead of most of the countries of the world," said Nath.

There are expectations that inflation rate would further ease and thus the monetary authority is likely to cut the key policy rates again.

The fiscal stimulus by the government is expected to benefit the exporters that were left out in the last stimulus package. The government said that it will see that the slowdown in the Western economies does not pose a problem in the domestic industry and therefore it will impose more taxes to protect the industry from cheap imports.

Amit Mitra of the Federation of Indian Chambers of Commerce and Industry (FICCI) said stimulus is needed in four areas. "One is for large industry like steel, chemical, cement, tyres, paper, and automobiles where we need certain relief packages. Second, is labour intensive sectors which have suffered a lot. For instance, textiles, and gems and jewellery where the package will differ from that of large industry. Third would be housing. Here, we are expecting certain measures to bring the customer back. Then, you have tax issues and direct spending increases for disbursement to take projects forward."

The NBFCs would get a special focus under the new package. They are likely to receive a special line of credit. However the big ticket home loans are expected to see some disappointment as the government will not increase the tax exemption on interest payments on home loans. The government feels that if it raises the cap on tax exemption then only the high net worth home loan buyers will see a reduction in their taxable income and realty firms would not be benefited.

It has been reported that this stimulus would raise the fiscal deficit of the country to around 5% of the GDP from projected 2.5% mentioned in the budget.

In the earlier announced fiscal package by the government, it was mentioned that additional Rs 200 billion will be spent in the current fiscal to protect the economy from global economic crisis.


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