Govt To Spend Rs 20K Cr More
Excise cut 4% across the board to boost demand
Govt To Spend Rs 20K Cr More; Home Loan Package Coming
New Delhi: Faced with a somnolent economy that’s not responding enthusiastically to monetary measures such as interest rate cuts, new finance minister (and Prime Minister) Manmohan Singh on Sunday took the twin route of fiscal incentives and government spending to stimulate growth.
He has identified two important levers that might spur the economy back on the growth path. First and perhaps the most important, is keeping comsumption levels in the economy high, even if that requires the government spending from its own pocket. The second is related to the first: Ensuring
that employment levels do not fall, not only to ensure continuing consumption but also because growing unemployment is suicidal when elections are just a few months away.
With these two broad-brush objectives in mind, Planning Commission deputy chairman and trusted man of the PM, Montek Singh Ahluwalia, unveiled a stimulus package for the economy with an acrossthe-board 4% cut in excise duty and a Rs 20,000-crore increase in plan expenditure as the centrepieces. Other measures included interest rate cuts on loans for infrastructure and exports, while a separate package for home loans has been promised soon. There are also measures which are aimed at providing exporters and the really small scale units some breathing space. Looking at the breadth, scope and impact of the measures announced, it can be assumed if Manmohan Singh had a middle name, it would probably be Keynes.
Will the blanket cut bring down prices and encourage consumers to start shopping again, which in turn would create demand for industry? Ahluwalia hoped that manufacturers would use the opportunity to reduce prices. However, initial reactions from industry indicated that not all of them planned to pass on the benefit to consumers.They will do so only when they are absolutely certain that their input prices have also come down.
Car prices to fall, but consumer goods may not
Prices of cars, two-wheelers and commercial vehicles are set to come down by around 3.5%, with almost all major manufacturers, including Maruti, Hyundai, M&M, Tata and TVS, saying they would be passing on the benefits of the reduced duty to customers immediately. Broadly, the 4% relief on ex-factory cost is likely to result in exshowroom price reduction in the range of Rs 8,000 to 45,000 for cars and SUVs. Major consumer durable and FMCG companies are not sure of passing on the price cuts to consumers and say any such talk at this point would be premature. Exporters, already reeling under negative growth, are a disappointed lot as they say the package does not address duty entitlement passbook scheme or the duty drawback scheme. P 17
Dr M’s Booster Dose For Economy
Measure |
Across the board
excise duty cut of 4%
Impact | Prices of
most manufactured
goods to fall. Expect
cheaper cars, bikes;
consumer durables like washing machines, ACs; nondurables like soaps, eatables; commodities like steel, cement
Measure |
Additional plan spend of Rs 20,000cr this fiscal Impact | Expected to stimulate demand and boost economy
Measure |
India Infrastructure Finance Company Ltd allowed to raise Rs 10,000 crore through tax-free bonds for lending to highway projects Impact | Leg up for infrastructure projects; estimated that this would support PPP projects worth Rs 100,000 crore in highways
Measure |
RBI to provide Rs 4,000cr refinance facility to National Housing Bank for lending to housing finance companies at low rate Impact | Cheaper home loans; expected to stimulate demand for houses
Measure |
Govt to bear two percentage points of interest
costs of loans taken
by export units
Impact | Indian
exporters, hit by
global slump, to become more competitive
Measure |
Govt departments allowed to replace their vehicles in current fiscal Impact | Car sales to rise
Measure |
More relief for micro and small units, apart from RBI pumping in Rs 7,000 crore into SIDBI Impact | Micro and small units, which employ millions, may stay afloat. Govt doesn’t want these units to shut down in an election year
Countervailing duty cut will make imports cheaper
New Delhi: The government’s attempt at boosting demand by cutting taxes comes about three weeks after then finance minister-nowhome minister P Chidambaram tried in vain to persuade industry to cut prices to boost demand. The excise duty cut applies to all manufactured goods except petroleum and those where the current rate is less than 4%. If manufacturers do pass on the cut — a big if — exfactory prices should come down by 4%, but retail prices are likely to decline less since overheads and other post-production costs would not be affected.
In a sort of mini-budget, excise duty has been cut on all manufactured goods, except petroleum and those where the current rate is less than 4%. If manufacturers do pass on the cut - a big if — ex-factory prices should come down by 4%, but retail prices are likely to decline less since overheads and other postproduction costs would not be affected. Hopes are pinned on reduced prices for four-wheelers, two-wheelers, consumer durables (such as refrigerators ands televisions) and some electronic products, like mobile phones. Some auto manufacturers — such as Mahindra& Mahindra, Tata Motors and Maruti Suzuki — have already announced they will cut prices.
The excise cut would also impact imported goods, since the countervailing duty applicable to them would come down by the same amount. The 4% cut is estimated to cost the government Rs 8,700 crore by way of foregone revenues. If demand rise, the revenue loss would be smaller since what the government would lose by way of cutting duty it would make up through larger volumes.
Planning Commission deputy chairman Montek Singh Ahluwalia said the government was not worried about the revenue loss or about the fiscal deficit. He admitted that the stimulus package would lead to widening of the fiscal deficit, but said the main aim of the government at present was to arrest the slowdown.
Announcing the intention to increase plan expenditure by Rs 20,000 crore, Ahluwalia pointed out that with this, the government would be spending Rs 300,000 crore under plan and non-plan expenditure in the next four months of the current fiscal. This includes Rs 280,000 crore, provided in the budget but not spent so far.
The government also decided to allow Indian Infrastructure Finance Company Limited (IIFCL) to raise Rs 10,000 crore in tax-free bonds. This will enable it to raise funds at a lower interest rate. IIFCL will use the funds to refinance low-interest bank lending to infrastructure projects under public private partnerships (PPP).
The lower rates, Ahluwalia said, would improve the viability of projects. He hoped private companies, which had shied away because of high interest rates, would now show interest in implementing PPP infrastructure projects. If that happens, it would boost demand for steel, cement and other items. It would also provide fresh employment opportunities for lakhs of unemployed. However, for the projects to have the desired outcome, IIFCL might have act fat.
Ahluwalia said that besides the Rs 4,000-crore line of credit provided by RBI to National Housing Bank (NHB) to lend to housing finance companies, the public sector banks will soon announce a package for borrowers of home loans up to Rs 20 lakh. Housing also has a multiplier effect on the economy (through its linkages with cement, steel and the transport sector, apart from generating employment) but the Rs 20-lakh ceiling seems to be aimed at keeping the speculative element out of the market, which caused the asset price inflation in the first place.
To counter the slump in exports, the government has decided to subsidise interest costs of exporters by up to 2 percentage points subject to a minimum rate of 7% per annum. An additional fund of Rs 1,100 crore has also been provided to ensure full refund of duties including service tax paid on inputs.
For medium, small and micro enterprises (MSMEs), the government increased the guarantee cover on loans to lending institutions from Rs 50 lakh to Rs 1 crore. The government has also asked PSUs to make prompt payment to MSMEs. These measures are in addition to the Rs 7,000 crore refinance facility by RBI to the Small Industries Development Board of India (SIDBI).
Import duty on naptha for the power sector has been reduced to zero from 5% in a bid to bring down costs for the sector. For the textile sector - one of the country’s largest employers and exporters — the government has made an additional allocation of Rs 1,400 crore to clear backlogs in the technology upgradation fund (TUF) scheme. This is aimed at helping textile units to upgrade to improve competitiveness.
There was also a sweetener for the auto sector. Relaxing the economy drive in the government, departments have been allowed to replace vehicles within the allowed budget in 2008-09. Earlier, they could do so only with approval from a senior official.
Source: TOI - 08/12/2008
Govt To Spend Rs 20K Cr More; Home Loan Package Coming
New Delhi: Faced with a somnolent economy that’s not responding enthusiastically to monetary measures such as interest rate cuts, new finance minister (and Prime Minister) Manmohan Singh on Sunday took the twin route of fiscal incentives and government spending to stimulate growth.
He has identified two important levers that might spur the economy back on the growth path. First and perhaps the most important, is keeping comsumption levels in the economy high, even if that requires the government spending from its own pocket. The second is related to the first: Ensuring
that employment levels do not fall, not only to ensure continuing consumption but also because growing unemployment is suicidal when elections are just a few months away.
With these two broad-brush objectives in mind, Planning Commission deputy chairman and trusted man of the PM, Montek Singh Ahluwalia, unveiled a stimulus package for the economy with an acrossthe-board 4% cut in excise duty and a Rs 20,000-crore increase in plan expenditure as the centrepieces. Other measures included interest rate cuts on loans for infrastructure and exports, while a separate package for home loans has been promised soon. There are also measures which are aimed at providing exporters and the really small scale units some breathing space. Looking at the breadth, scope and impact of the measures announced, it can be assumed if Manmohan Singh had a middle name, it would probably be Keynes.
Will the blanket cut bring down prices and encourage consumers to start shopping again, which in turn would create demand for industry? Ahluwalia hoped that manufacturers would use the opportunity to reduce prices. However, initial reactions from industry indicated that not all of them planned to pass on the benefit to consumers.They will do so only when they are absolutely certain that their input prices have also come down.
Car prices to fall, but consumer goods may not
Prices of cars, two-wheelers and commercial vehicles are set to come down by around 3.5%, with almost all major manufacturers, including Maruti, Hyundai, M&M, Tata and TVS, saying they would be passing on the benefits of the reduced duty to customers immediately. Broadly, the 4% relief on ex-factory cost is likely to result in exshowroom price reduction in the range of Rs 8,000 to 45,000 for cars and SUVs. Major consumer durable and FMCG companies are not sure of passing on the price cuts to consumers and say any such talk at this point would be premature. Exporters, already reeling under negative growth, are a disappointed lot as they say the package does not address duty entitlement passbook scheme or the duty drawback scheme. P 17
Dr M’s Booster Dose For Economy
Measure |
Across the board
excise duty cut of 4%
Impact | Prices of
most manufactured
goods to fall. Expect
cheaper cars, bikes;
consumer durables like washing machines, ACs; nondurables like soaps, eatables; commodities like steel, cement
Measure |
Additional plan spend of Rs 20,000cr this fiscal Impact | Expected to stimulate demand and boost economy
Measure |
India Infrastructure Finance Company Ltd allowed to raise Rs 10,000 crore through tax-free bonds for lending to highway projects Impact | Leg up for infrastructure projects; estimated that this would support PPP projects worth Rs 100,000 crore in highways
Measure |
RBI to provide Rs 4,000cr refinance facility to National Housing Bank for lending to housing finance companies at low rate Impact | Cheaper home loans; expected to stimulate demand for houses
Measure |
Govt to bear two percentage points of interest
costs of loans taken
by export units
Impact | Indian
exporters, hit by
global slump, to become more competitive
Measure |
Govt departments allowed to replace their vehicles in current fiscal Impact | Car sales to rise
Measure |
More relief for micro and small units, apart from RBI pumping in Rs 7,000 crore into SIDBI Impact | Micro and small units, which employ millions, may stay afloat. Govt doesn’t want these units to shut down in an election year
Countervailing duty cut will make imports cheaper
New Delhi: The government’s attempt at boosting demand by cutting taxes comes about three weeks after then finance minister-nowhome minister P Chidambaram tried in vain to persuade industry to cut prices to boost demand. The excise duty cut applies to all manufactured goods except petroleum and those where the current rate is less than 4%. If manufacturers do pass on the cut — a big if — exfactory prices should come down by 4%, but retail prices are likely to decline less since overheads and other post-production costs would not be affected.
In a sort of mini-budget, excise duty has been cut on all manufactured goods, except petroleum and those where the current rate is less than 4%. If manufacturers do pass on the cut - a big if — ex-factory prices should come down by 4%, but retail prices are likely to decline less since overheads and other postproduction costs would not be affected. Hopes are pinned on reduced prices for four-wheelers, two-wheelers, consumer durables (such as refrigerators ands televisions) and some electronic products, like mobile phones. Some auto manufacturers — such as Mahindra& Mahindra, Tata Motors and Maruti Suzuki — have already announced they will cut prices.
The excise cut would also impact imported goods, since the countervailing duty applicable to them would come down by the same amount. The 4% cut is estimated to cost the government Rs 8,700 crore by way of foregone revenues. If demand rise, the revenue loss would be smaller since what the government would lose by way of cutting duty it would make up through larger volumes.
Planning Commission deputy chairman Montek Singh Ahluwalia said the government was not worried about the revenue loss or about the fiscal deficit. He admitted that the stimulus package would lead to widening of the fiscal deficit, but said the main aim of the government at present was to arrest the slowdown.
Announcing the intention to increase plan expenditure by Rs 20,000 crore, Ahluwalia pointed out that with this, the government would be spending Rs 300,000 crore under plan and non-plan expenditure in the next four months of the current fiscal. This includes Rs 280,000 crore, provided in the budget but not spent so far.
The government also decided to allow Indian Infrastructure Finance Company Limited (IIFCL) to raise Rs 10,000 crore in tax-free bonds. This will enable it to raise funds at a lower interest rate. IIFCL will use the funds to refinance low-interest bank lending to infrastructure projects under public private partnerships (PPP).
The lower rates, Ahluwalia said, would improve the viability of projects. He hoped private companies, which had shied away because of high interest rates, would now show interest in implementing PPP infrastructure projects. If that happens, it would boost demand for steel, cement and other items. It would also provide fresh employment opportunities for lakhs of unemployed. However, for the projects to have the desired outcome, IIFCL might have act fat.
Ahluwalia said that besides the Rs 4,000-crore line of credit provided by RBI to National Housing Bank (NHB) to lend to housing finance companies, the public sector banks will soon announce a package for borrowers of home loans up to Rs 20 lakh. Housing also has a multiplier effect on the economy (through its linkages with cement, steel and the transport sector, apart from generating employment) but the Rs 20-lakh ceiling seems to be aimed at keeping the speculative element out of the market, which caused the asset price inflation in the first place.
To counter the slump in exports, the government has decided to subsidise interest costs of exporters by up to 2 percentage points subject to a minimum rate of 7% per annum. An additional fund of Rs 1,100 crore has also been provided to ensure full refund of duties including service tax paid on inputs.
For medium, small and micro enterprises (MSMEs), the government increased the guarantee cover on loans to lending institutions from Rs 50 lakh to Rs 1 crore. The government has also asked PSUs to make prompt payment to MSMEs. These measures are in addition to the Rs 7,000 crore refinance facility by RBI to the Small Industries Development Board of India (SIDBI).
Import duty on naptha for the power sector has been reduced to zero from 5% in a bid to bring down costs for the sector. For the textile sector - one of the country’s largest employers and exporters — the government has made an additional allocation of Rs 1,400 crore to clear backlogs in the technology upgradation fund (TUF) scheme. This is aimed at helping textile units to upgrade to improve competitiveness.
There was also a sweetener for the auto sector. Relaxing the economy drive in the government, departments have been allowed to replace vehicles within the allowed budget in 2008-09. Earlier, they could do so only with approval from a senior official.
Source: TOI - 08/12/2008