Impact of Stimulus Package

INVESTMENT SCENARIO IN INDIA CHALLENGES

AND OPPORTUNITIES

IMPACT OF STIMULUS PACKAGE

Paper presentation by

Nisa S

Lecturer Finance

TKM Institute of Management

Nisa S Page 1

Impact of Stimulus Package

Musaliar Hills Karuvelil PO Kollam

Phone 0474 2482465 2482466

Synopsis

The impact of the global crisis has been transmitted to

the Indian economy through three distinct channels viz the

financial sector exports and exchange rates The financial

sector including the banking sector equity markets external

commercial borrowings and remittances has not remained unscathed

though fortunately the Indian banking sector was not overly

exposed to the sub-prime crisis Only one of the larger banks

ICICI was partly affected but managed to thwart a crisis because

of its strong balance sheet and timely action by the government

which virtually guaranteed its deposits The equity markets have

seen a near 60 percent decline in the index and a wiping off of

about USD13 trillion in market capitalization since January 2008

when the Sensex had peaked at about 21000 This is primarily due

to the withdrawal of about USD12 billion from the market by

foreign portfolio investors between September and December 2008

The foreign investors withdrew these funds in order to strengthen

the balance sheet of their parent companies Commercial credit

both for trade finance and medium-term advances from foreign

banks has virtually dried-up This has had to be replaced with

Nisa S Page 2

Impact of Stimulus Package

credit lines from domestic banks but at higher interest costs and

has caused the Rupee to depreciate raising the cost of existing

foreign loans Finally while the latest numbers are not yet

available remittances from overseas Indians have reportedly

fallen as oil producing economies in the Gulf and West Asia begin

to suffer from decline in oil prices The second transmission of

the global downturn to the Indian economy has been through the

steep decline in demand for Indiarsquos exports in its major markets

The first sector to be hit was the gems and jewellery which felt

the impact in November itself and where more than 300000 workers

have lost their jobs The negative impact has since covered other

export-oriented sectors garments and textiles leather

handicrafts and auto components The 21 percent decline in

exports in February 2009 is the steepest fall in exports for the

last two decades It is unlikely that exports will recover within

this year While exports of both goods and services still

account for only about 22 percent of the Indian GDP their

multiplier effect for economic activity is quite large as the

import content is not as high as for example in the case of

Chinese exports Therefore an export slump will bring down GDP

growth rate in this year

The third transmission channel is the exchange rate as the Rupee

has come under pressure with the outflow of portfolio

investments higher foreign exchange demand by Indian

entrepreneurs seeking to replace external commercial borrowing by

Nisa S Page 3

Impact of Stimulus Package

domestic financing and the consequent decline in foreign

exchange reserves This is likely to continue because current

account will remain in deficit and the capital account which has

been in deficit in the second and third quarters of 2008-09 will

not generate the needed surplus to cover the current account

deficit This will imply further drawing down of foreign exchange

reserves and continued downward pressure on the exchange rate

However with foreign exchange reserves remaining at 110 percent

of total external debt at the end of December 2008 investment

sentiments should not be unduly affected in the near-term The

nearly 25 percent depreciation in the Rupeersquos exchange rate has

partially nullified the benefits from the decline in global oil

and gas prices and increased the cost of commercial borrowings

The weaker Rupee should encourage our exporters and it is

possible that with imports declining as sharply as exports the

countryrsquos trade deficit may actually improve in the short-run and

the external sector balance may remain stable and not pose any

major policy issue Overall it would be fair to say that the

timing of the external shock from the global economic downturn

has been rather unfortunate Coming right on the heels of a

policy induced contraction in economic activity its initial

impact as reflected in the third quarter GDP growth falling to

53 percent and the steep decline in exports has been perhaps

exaggerated This negative impact has been to an extent

ameliorated by the quick policy response both by the RBI and the

Central government The RBI has infused about USD80 billion as

Nisa S Page 4

Impact of Stimulus Package

additional liquidity by cutting the CRR lowering the SLR and

unwinding the MSS The RBI has also signaled its expansionary

preference by cutting its repo rate at which it lends funds to

commercial banks from nine to five percent in less than six

months The reverse-repo rate has also been brought down to 35

percent to discourage banks from parking overnight funds with the

RBI Three fiscal stimuli have been announced between November

2008 to February 2009 These amount to about 13 percent of the

GDP

Introduction

Investment is the key element which has taken India on

high growth trajectory In this post we try to analyze current

scenario of investment in 3 core sectors infrastructure

education and security

Infrastructure investment India has emerged as land of

opportunities for infrastructure sector The potential is

exorbitant as many sectors have opened up for participation and

private investment The telecom sector has moved forward at a

brisk pace and power reforms have gained momentum while the

Nisa S Page 5

Impact of Stimulus Package

Musaliar Hills Karuvelil PO Kollam

Phone 0474 2482465 2482466

Synopsis

The impact of the global crisis has been transmitted to

the Indian economy through three distinct channels viz the

financial sector exports and exchange rates The financial

sector including the banking sector equity markets external

commercial borrowings and remittances has not remained unscathed

though fortunately the Indian banking sector was not overly

exposed to the sub-prime crisis Only one of the larger banks

ICICI was partly affected but managed to thwart a crisis because

of its strong balance sheet and timely action by the government

which virtually guaranteed its deposits The equity markets have

seen a near 60 percent decline in the index and a wiping off of

about USD13 trillion in market capitalization since January 2008

when the Sensex had peaked at about 21000 This is primarily due

to the withdrawal of about USD12 billion from the market by

foreign portfolio investors between September and December 2008

The foreign investors withdrew these funds in order to strengthen

the balance sheet of their parent companies Commercial credit

both for trade finance and medium-term advances from foreign

banks has virtually dried-up This has had to be replaced with

Nisa S Page 2

Impact of Stimulus Package

credit lines from domestic banks but at higher interest costs and

has caused the Rupee to depreciate raising the cost of existing

foreign loans Finally while the latest numbers are not yet

available remittances from overseas Indians have reportedly

fallen as oil producing economies in the Gulf and West Asia begin

to suffer from decline in oil prices The second transmission of

the global downturn to the Indian economy has been through the

steep decline in demand for Indiarsquos exports in its major markets

The first sector to be hit was the gems and jewellery which felt

the impact in November itself and where more than 300000 workers

have lost their jobs The negative impact has since covered other

export-oriented sectors garments and textiles leather

handicrafts and auto components The 21 percent decline in

exports in February 2009 is the steepest fall in exports for the

last two decades It is unlikely that exports will recover within

this year While exports of both goods and services still

account for only about 22 percent of the Indian GDP their

multiplier effect for economic activity is quite large as the

import content is not as high as for example in the case of

Chinese exports Therefore an export slump will bring down GDP

growth rate in this year

The third transmission channel is the exchange rate as the Rupee

has come under pressure with the outflow of portfolio

investments higher foreign exchange demand by Indian

entrepreneurs seeking to replace external commercial borrowing by

Nisa S Page 3

Impact of Stimulus Package

domestic financing and the consequent decline in foreign

exchange reserves This is likely to continue because current

account will remain in deficit and the capital account which has

been in deficit in the second and third quarters of 2008-09 will

not generate the needed surplus to cover the current account

deficit This will imply further drawing down of foreign exchange

reserves and continued downward pressure on the exchange rate

However with foreign exchange reserves remaining at 110 percent

of total external debt at the end of December 2008 investment

sentiments should not be unduly affected in the near-term The

nearly 25 percent depreciation in the Rupeersquos exchange rate has

partially nullified the benefits from the decline in global oil

and gas prices and increased the cost of commercial borrowings

The weaker Rupee should encourage our exporters and it is

possible that with imports declining as sharply as exports the

countryrsquos trade deficit may actually improve in the short-run and

the external sector balance may remain stable and not pose any

major policy issue Overall it would be fair to say that the

timing of the external shock from the global economic downturn

has been rather unfortunate Coming right on the heels of a

policy induced contraction in economic activity its initial

impact as reflected in the third quarter GDP growth falling to

53 percent and the steep decline in exports has been perhaps

exaggerated This negative impact has been to an extent

ameliorated by the quick policy response both by the RBI and the

Central government The RBI has infused about USD80 billion as

Nisa S Page 4

Impact of Stimulus Package

additional liquidity by cutting the CRR lowering the SLR and

unwinding the MSS The RBI has also signaled its expansionary

preference by cutting its repo rate at which it lends funds to

commercial banks from nine to five percent in less than six

months The reverse-repo rate has also been brought down to 35

percent to discourage banks from parking overnight funds with the

RBI Three fiscal stimuli have been announced between November

2008 to February 2009 These amount to about 13 percent of the

GDP

Introduction

Investment is the key element which has taken India on

high growth trajectory In this post we try to analyze current

scenario of investment in 3 core sectors infrastructure

education and security

Infrastructure investment India has emerged as land of

opportunities for infrastructure sector The potential is

exorbitant as many sectors have opened up for participation and

private investment The telecom sector has moved forward at a

brisk pace and power reforms have gained momentum while the

Nisa S Page 5

Impact of Stimulus Package

credit lines from domestic banks but at higher interest costs and

has caused the Rupee to depreciate raising the cost of existing

foreign loans Finally while the latest numbers are not yet

available remittances from overseas Indians have reportedly

fallen as oil producing economies in the Gulf and West Asia begin

to suffer from decline in oil prices The second transmission of

the global downturn to the Indian economy has been through the

steep decline in demand for Indiarsquos exports in its major markets

The first sector to be hit was the gems and jewellery which felt

the impact in November itself and where more than 300000 workers

have lost their jobs The negative impact has since covered other

export-oriented sectors garments and textiles leather

handicrafts and auto components The 21 percent decline in

exports in February 2009 is the steepest fall in exports for the

last two decades It is unlikely that exports will recover within

this year While exports of both goods and services still

account for only about 22 percent of the Indian GDP their

multiplier effect for economic activity is quite large as the

import content is not as high as for example in the case of

Chinese exports Therefore an export slump will bring down GDP

growth rate in this year

The third transmission channel is the exchange rate as the Rupee

has come under pressure with the outflow of portfolio

investments higher foreign exchange demand by Indian

entrepreneurs seeking to replace external commercial borrowing by

Nisa S Page 3

Impact of Stimulus Package

domestic financing and the consequent decline in foreign

exchange reserves This is likely to continue because current

account will remain in deficit and the capital account which has

been in deficit in the second and third quarters of 2008-09 will

not generate the needed surplus to cover the current account

deficit This will imply further drawing down of foreign exchange

reserves and continued downward pressure on the exchange rate

However with foreign exchange reserves remaining at 110 percent

of total external debt at the end of December 2008 investment

sentiments should not be unduly affected in the near-term The

nearly 25 percent depreciation in the Rupeersquos exchange rate has

partially nullified the benefits from the decline in global oil

and gas prices and increased the cost of commercial borrowings

The weaker Rupee should encourage our exporters and it is

possible that with imports declining as sharply as exports the

countryrsquos trade deficit may actually improve in the short-run and

the external sector balance may remain stable and not pose any

major policy issue Overall it would be fair to say that the

timing of the external shock from the global economic downturn

has been rather unfortunate Coming right on the heels of a

policy induced contraction in economic activity its initial

impact as reflected in the third quarter GDP growth falling to

53 percent and the steep decline in exports has been perhaps

exaggerated This negative impact has been to an extent

ameliorated by the quick policy response both by the RBI and the

Central government The RBI has infused about USD80 billion as

Nisa S Page 4

Impact of Stimulus Package

additional liquidity by cutting the CRR lowering the SLR and

unwinding the MSS The RBI has also signaled its expansionary

preference by cutting its repo rate at which it lends funds to

commercial banks from nine to five percent in less than six

months The reverse-repo rate has also been brought down to 35

percent to discourage banks from parking overnight funds with the

RBI Three fiscal stimuli have been announced between November

2008 to February 2009 These amount to about 13 percent of the

GDP

Introduction

Investment is the key element which has taken India on

high growth trajectory In this post we try to analyze current

scenario of investment in 3 core sectors infrastructure

education and security

Infrastructure investment India has emerged as land of

opportunities for infrastructure sector The potential is

exorbitant as many sectors have opened up for participation and

private investment The telecom sector has moved forward at a

brisk pace and power reforms have gained momentum while the

Nisa S Page 5

Impact of Stimulus Package

domestic financing and the consequent decline in foreign

exchange reserves This is likely to continue because current

account will remain in deficit and the capital account which has

been in deficit in the second and third quarters of 2008-09 will

not generate the needed surplus to cover the current account

deficit This will imply further drawing down of foreign exchange

reserves and continued downward pressure on the exchange rate

However with foreign exchange reserves remaining at 110 percent

of total external debt at the end of December 2008 investment

sentiments should not be unduly affected in the near-term The

nearly 25 percent depreciation in the Rupeersquos exchange rate has

partially nullified the benefits from the decline in global oil

and gas prices and increased the cost of commercial borrowings

The weaker Rupee should encourage our exporters and it is

possible that with imports declining as sharply as exports the

countryrsquos trade deficit may actually improve in the short-run and

the external sector balance may remain stable and not pose any

major policy issue Overall it would be fair to say that the

timing of the external shock from the global economic downturn

has been rather unfortunate Coming right on the heels of a

policy induced contraction in economic activity its initial

impact as reflected in the third quarter GDP growth falling to

53 percent and the steep decline in exports has been perhaps

exaggerated This negative impact has been to an extent

ameliorated by the quick policy response both by the RBI and the

Central government The RBI has infused about USD80 billion as

Nisa S Page 4

Impact of Stimulus Package

additional liquidity by cutting the CRR lowering the SLR and

unwinding the MSS The RBI has also signaled its expansionary

preference by cutting its repo rate at which it lends funds to

commercial banks from nine to five percent in less than six

months The reverse-repo rate has also been brought down to 35

percent to discourage banks from parking overnight funds with the

RBI Three fiscal stimuli have been announced between November

2008 to February 2009 These amount to about 13 percent of the

GDP

Introduction

Investment is the key element which has taken India on

high growth trajectory In this post we try to analyze current

scenario of investment in 3 core sectors infrastructure

education and security

Infrastructure investment India has emerged as land of

opportunities for infrastructure sector The potential is

exorbitant as many sectors have opened up for participation and

private investment The telecom sector has moved forward at a

brisk pace and power reforms have gained momentum while the

Nisa S Page 5

Impact of Stimulus Package

additional liquidity by cutting the CRR lowering the SLR and

unwinding the MSS The RBI has also signaled its expansionary

preference by cutting its repo rate at which it lends funds to

commercial banks from nine to five percent in less than six

months The reverse-repo rate has also been brought down to 35

percent to discourage banks from parking overnight funds with the

RBI Three fiscal stimuli have been announced between November

2008 to February 2009 These amount to about 13 percent of the

GDP

Introduction

Investment is the key element which has taken India on

high growth trajectory In this post we try to analyze current

scenario of investment in 3 core sectors infrastructure

education and security

Infrastructure investment India has emerged as land of

opportunities for infrastructure sector The potential is

exorbitant as many sectors have opened up for participation and

private investment The telecom sector has moved forward at a

brisk pace and power reforms have gained momentum while the

Nisa S Page 5

Impact of Stimulus Package

disinvestments process has got underway in the Telecom and Oil

and Gas sector India has been prominent in attracting most of

the infrastructure projects with private participation in the

region For instance an important role behind the extensive

growth of Indian IT sector and BPOrsquos is played by availability of

robust infrastructure (telecom power and roads) in the country

Recent steps to privatize the distribution of power and bring in

greater efficiencies and customer centricity in the market have

been welcomed by the ICT industry

Securities Market

In the times when Indian industries are battling with

wicked effects of global slowdown and recent terror attacks on

Mumbai the only industry poised to book high profits in future

is Indian security industry Private security in India will

become a Rs 50000 crore (Rs 500 billion) industry in four years

as corporate have increased their spending on safeguards after

the Mumbai terror strikes The private security business a Rs

22000 crore (Rs 220 billion) industry now would touch Rs 50000

crore as security all of a sudden has become top priority for

Indian Inc

Terrorism now is a universal phenomenon and most countries are

facing it It is the other overwhelming factors that will affect

investments Yet itrsquos imperative that we put in place a

foolproof security system that can sense and eliminate these

Nisa S Page 6

Impact of Stimulus Package

terrorist attacks We also need to improve risk management

systems and disaster recovery plans

Indiarsquos position in the emerging financial and economic

architecture is going to be substantial Stakeholders of the

growth are not Indians alone but the world community That calls

for a joint action against terrorismThe Government as well as

the Reserve Bank of India (RBI) announced a series of measures to

provide stimulus to the economy These steps are in the right

direction but are obviously constrained by the current fiscal

health of the country as indicated by the relatively small size

of the stimulus package Equity markets appear to have priced in

much of this already and the actual measures may disappoint

however specific sectors such as auto real estate banking and

export-oriented should react positively

Need for Stimulus

The Government has been concerned about the impact

of the global financial crisis on the Indian economy and a number

of steps have been taken to deal with this problem The first

priority was to re-assure the people of the stability of the

financial system in general and of the safety of bank deposits in

particular To this end steps were taken to infuse liquidity

into the banking system and also to address problems being faced

Nisa S Page 7

Impact of Stimulus Package

by various non-bank financing companies These steps have ensured

that the financial system is functioning effectively without

suffering the kind of loss of confidence experienced in the

industrialised world

Having assured stability of the system the Government has

focused its attention on countering the impact of the global

recession on Indias economic growth On the monetary side the

RBI has sought to pump sufficient liquidity into the banking

system to enable bank credit to meet the expanded requirements of

the economy keeping in mind the contraction in credit from non-

bank sources Banks have been provided adequate liquidity through

a series of reductions in the CRR and additional flexibility in

meeting the SLR requirement Interest rate reductions have also

been signalled by reductions in the repo and reverse repo rates

the most recent of which was announced on Saturday when both the

repo rate and the reverse repo rate were cut by 100 basis points

Access to external commercial borrowings has also been

liberalised so that borrowers capable of accessing funds from

abroad are allowed to do so The banks are being encouraged to

counter what might otherwise become self-fulfilling negative

expectations by enhanced lending to support economic activity

These measures in the area of money and credit are being

supplemented by fiscal measures designed to stimulate the

economy In recognition of the need for a fiscal stimulus the

Nisa S Page 8

Impact of Stimulus Package

government had consciously allowed the fiscal deficit to expand

beyond the originally targeted level because of the loan waivers

issue of oil and fertilizer bonds and higher levels of food

subsidy In addition the following steps are being taken

Stimulus packages-

First Stimulus Package announced by Government of India on

7122008

Second Stimulus Package announced by Government of India on

212009

Third Stimulus Package announced by Government of India on

2422009

Fourth set of Stimulus provided through Foreign Trade Policy by

Government of India on 2622009

First Stimulus package-

1 Plan Expenditure

In order to provide a contra-cyclical stimulus via plan

expenditure the Government has decided to seek authorization for

additional plan expenditure of upto Rs 20000 crore in the

current year In addition steps are being taken to ensure full

utilization of funds already provided so that the pace of

expenditure is maintained The total spending programme in the

balance four months of the current fiscal year taking plan and

Nisa S Page 9

Impact of Stimulus Package

non-plan expenditure together is expected to be Rs 300000

crore

The economy will continue to need stimulus in 2009-2010 also and

this can be achieved by ensuring a substantial increase in plan

expenditure as part of the budget for next year

2 Reduction in Cenvat

As an immediate measure to encourage additional spending an

across-the-board cut of 4 in the ad valorem Cenvat rate will be

effected for the balance part of the current financial year on

all products other than petroleum and those where the current

rate is less than 4

3 Measures to Support Exports

i) Pre and post-shipment export credit for labour intensive

exports ie textiles (including handlooms carpets and

handicrafts) leather gems amp jewellery marine products and SME

sector is being made more attractive by providing an interest

subvention of 2 percent upto 3132009 subject to minimum rate of

interest of 7 percent per annum

ii) Additional funds of Rs 1100 crore will be provided to ensure

full refund of Terminal Excise dutyCST

iii) An additional allocation for export incentive schemes of Rs

350 crore will be made

Nisa S Page 10

Impact of Stimulus Package

iv) Government back-up guarantee will be made available to ECGC

to the extent of Rs 350 crore to enable it to provide guarantees

for exports to difficult marketsproducts

v) Exporters will be allowed refund of service tax on foreign

agent commissions of upto 10 percent of FOB value of exports

They will also be allowed refund of service tax on output

services while availing of benefits under Duty Drawback Scheme

4 Housing

Housing is a potentially very important source of employment and

demand for critical sectors and there is a large unmet need for

housing in the country especially for middle and low income

groups The Reserve Bank has announced that it will shortly put

in place a refinance facility of Rs 4000 crore for the National

Housing Bank In addition one of the areas where plan

expenditure can be increased relatively easily is the Indira Awas

Yojana As a further measure of support for this sector public

sector banks will shortly announce a package for borrowers of

home loans in two categories (1) upto Rs 5 lakhs and (2) Rs 5

lakh-Rs 20 lakh This sector will be kept under a close watch and

additional measures would be taken as necessary to promote an

accelerated growth trajectory

5 MSME Sector

The Government attaches the highest priority to supporting the

medium small and micro enterprises (MSMEs) sector which is

Nisa S Page 11

Impact of Stimulus Package

critical for employment generation To facilitate the flow of

credit to MSMEs RBI has announced a refinance facility of Rs

7000 crore for SIDBI which will be available to support

incremental lending either directly to MSMEs or indirectly via

banks NBFCs and SFCs In addition the following steps are being

taken

(a) To boost collateral free lending the current guarantee cover

under Credit Guarantee Scheme for Micro and Small enterprises on

loans will be extended from Rs 50 lakh to Rs 1 crore with

guarantee cover of 50 percent

(b) The lock in period for loans covered under the existing

credit guarantee scheme will be reduced from 24 to 18 months to

encourage banks to cover more loans under the guarantee scheme

(c) Government will issue an advisory to Central Public Sector

Enterprises and request State Public Sector Enterprises to ensure

prompt payment of bills of MSMEs Easing of credit conditions

generally should help PSUs to make such payments on schedule

6 Textiles

(a) An additional allocation of Rs 1400 crore will be made to

clear the entire backlog in TUF Scheme

(b) All items of handicrafts will be included under Vishesh

Krishi amp Gram Udyog Yojana

7 Infrastructure Financing

Nisa S Page 12

Impact of Stimulus Package

A large number of infrastructure projects are now being clearedfor implementation in the Public Private Partnership mode Theseprojects may experience difficulty in reaching financial closuregiven the current uncertainties in the financial world In orderto support financing of such projects Government has decided toauthorise the India Infrastructure Finance Company Limited(IIFCL) to raise Rs 10000 crore through tax-free bonds by3132009 These funds will be used by IIFCL to refinance banklending of longer maturity to eligible infrastructure projectsparticularly in highways and port sectors In this way it isexpected that IIFCL resources used for refinance can leveragebank financing of double the amount Depending on need IIFCLwill be permitted to raise further resources by issue of suchbonds In particular these initiatives will support a PPPprogramme of Rs 100000 crore in the highways sector

8 Others

(a) Government departments will be allowed to take up replacement

of government vehicles within the allowed budget in relaxation

of extant economy instructions

(b) Import Duty on Naphtha for use in the power sector will be

eliminated

(c) Export duty on iron ore fines will be eliminated and on lumps

will be reduced to 5

SECOND STIMULUS PACKAGE

The government and the Reserve Bank of India announced a second

stimulus package for the economy that includes a further easing

of liquidity and liberalization of various rules and regulations

to give a boost to spending and investment

Nisa S Page 13

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

terrorist attacks We also need to improve risk management

systems and disaster recovery plans

Indiarsquos position in the emerging financial and economic

architecture is going to be substantial Stakeholders of the

growth are not Indians alone but the world community That calls

for a joint action against terrorismThe Government as well as

the Reserve Bank of India (RBI) announced a series of measures to

provide stimulus to the economy These steps are in the right

direction but are obviously constrained by the current fiscal

health of the country as indicated by the relatively small size

of the stimulus package Equity markets appear to have priced in

much of this already and the actual measures may disappoint

however specific sectors such as auto real estate banking and

export-oriented should react positively

Need for Stimulus

The Government has been concerned about the impact

of the global financial crisis on the Indian economy and a number

of steps have been taken to deal with this problem The first

priority was to re-assure the people of the stability of the

financial system in general and of the safety of bank deposits in

particular To this end steps were taken to infuse liquidity

into the banking system and also to address problems being faced

Nisa S Page 7

Impact of Stimulus Package

by various non-bank financing companies These steps have ensured

that the financial system is functioning effectively without

suffering the kind of loss of confidence experienced in the

industrialised world

Having assured stability of the system the Government has

focused its attention on countering the impact of the global

recession on Indias economic growth On the monetary side the

RBI has sought to pump sufficient liquidity into the banking

system to enable bank credit to meet the expanded requirements of

the economy keeping in mind the contraction in credit from non-

bank sources Banks have been provided adequate liquidity through

a series of reductions in the CRR and additional flexibility in

meeting the SLR requirement Interest rate reductions have also

been signalled by reductions in the repo and reverse repo rates

the most recent of which was announced on Saturday when both the

repo rate and the reverse repo rate were cut by 100 basis points

Access to external commercial borrowings has also been

liberalised so that borrowers capable of accessing funds from

abroad are allowed to do so The banks are being encouraged to

counter what might otherwise become self-fulfilling negative

expectations by enhanced lending to support economic activity

These measures in the area of money and credit are being

supplemented by fiscal measures designed to stimulate the

economy In recognition of the need for a fiscal stimulus the

Nisa S Page 8

Impact of Stimulus Package

government had consciously allowed the fiscal deficit to expand

beyond the originally targeted level because of the loan waivers

issue of oil and fertilizer bonds and higher levels of food

subsidy In addition the following steps are being taken

Stimulus packages-

First Stimulus Package announced by Government of India on

7122008

Second Stimulus Package announced by Government of India on

212009

Third Stimulus Package announced by Government of India on

2422009

Fourth set of Stimulus provided through Foreign Trade Policy by

Government of India on 2622009

First Stimulus package-

1 Plan Expenditure

In order to provide a contra-cyclical stimulus via plan

expenditure the Government has decided to seek authorization for

additional plan expenditure of upto Rs 20000 crore in the

current year In addition steps are being taken to ensure full

utilization of funds already provided so that the pace of

expenditure is maintained The total spending programme in the

balance four months of the current fiscal year taking plan and

Nisa S Page 9

Impact of Stimulus Package

non-plan expenditure together is expected to be Rs 300000

crore

The economy will continue to need stimulus in 2009-2010 also and

this can be achieved by ensuring a substantial increase in plan

expenditure as part of the budget for next year

2 Reduction in Cenvat

As an immediate measure to encourage additional spending an

across-the-board cut of 4 in the ad valorem Cenvat rate will be

effected for the balance part of the current financial year on

all products other than petroleum and those where the current

rate is less than 4

3 Measures to Support Exports

i) Pre and post-shipment export credit for labour intensive

exports ie textiles (including handlooms carpets and

handicrafts) leather gems amp jewellery marine products and SME

sector is being made more attractive by providing an interest

subvention of 2 percent upto 3132009 subject to minimum rate of

interest of 7 percent per annum

ii) Additional funds of Rs 1100 crore will be provided to ensure

full refund of Terminal Excise dutyCST

iii) An additional allocation for export incentive schemes of Rs

350 crore will be made

Nisa S Page 10

Impact of Stimulus Package

iv) Government back-up guarantee will be made available to ECGC

to the extent of Rs 350 crore to enable it to provide guarantees

for exports to difficult marketsproducts

v) Exporters will be allowed refund of service tax on foreign

agent commissions of upto 10 percent of FOB value of exports

They will also be allowed refund of service tax on output

services while availing of benefits under Duty Drawback Scheme

4 Housing

Housing is a potentially very important source of employment and

demand for critical sectors and there is a large unmet need for

housing in the country especially for middle and low income

groups The Reserve Bank has announced that it will shortly put

in place a refinance facility of Rs 4000 crore for the National

Housing Bank In addition one of the areas where plan

expenditure can be increased relatively easily is the Indira Awas

Yojana As a further measure of support for this sector public

sector banks will shortly announce a package for borrowers of

home loans in two categories (1) upto Rs 5 lakhs and (2) Rs 5

lakh-Rs 20 lakh This sector will be kept under a close watch and

additional measures would be taken as necessary to promote an

accelerated growth trajectory

5 MSME Sector

The Government attaches the highest priority to supporting the

medium small and micro enterprises (MSMEs) sector which is

Nisa S Page 11

Impact of Stimulus Package

critical for employment generation To facilitate the flow of

credit to MSMEs RBI has announced a refinance facility of Rs

7000 crore for SIDBI which will be available to support

incremental lending either directly to MSMEs or indirectly via

banks NBFCs and SFCs In addition the following steps are being

taken

(a) To boost collateral free lending the current guarantee cover

under Credit Guarantee Scheme for Micro and Small enterprises on

loans will be extended from Rs 50 lakh to Rs 1 crore with

guarantee cover of 50 percent

(b) The lock in period for loans covered under the existing

credit guarantee scheme will be reduced from 24 to 18 months to

encourage banks to cover more loans under the guarantee scheme

(c) Government will issue an advisory to Central Public Sector

Enterprises and request State Public Sector Enterprises to ensure

prompt payment of bills of MSMEs Easing of credit conditions

generally should help PSUs to make such payments on schedule

6 Textiles

(a) An additional allocation of Rs 1400 crore will be made to

clear the entire backlog in TUF Scheme

(b) All items of handicrafts will be included under Vishesh

Krishi amp Gram Udyog Yojana

7 Infrastructure Financing

Nisa S Page 12

Impact of Stimulus Package

A large number of infrastructure projects are now being clearedfor implementation in the Public Private Partnership mode Theseprojects may experience difficulty in reaching financial closuregiven the current uncertainties in the financial world In orderto support financing of such projects Government has decided toauthorise the India Infrastructure Finance Company Limited(IIFCL) to raise Rs 10000 crore through tax-free bonds by3132009 These funds will be used by IIFCL to refinance banklending of longer maturity to eligible infrastructure projectsparticularly in highways and port sectors In this way it isexpected that IIFCL resources used for refinance can leveragebank financing of double the amount Depending on need IIFCLwill be permitted to raise further resources by issue of suchbonds In particular these initiatives will support a PPPprogramme of Rs 100000 crore in the highways sector

8 Others

(a) Government departments will be allowed to take up replacement

of government vehicles within the allowed budget in relaxation

of extant economy instructions

(b) Import Duty on Naphtha for use in the power sector will be

eliminated

(c) Export duty on iron ore fines will be eliminated and on lumps

will be reduced to 5

SECOND STIMULUS PACKAGE

The government and the Reserve Bank of India announced a second

stimulus package for the economy that includes a further easing

of liquidity and liberalization of various rules and regulations

to give a boost to spending and investment

Nisa S Page 13

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

by various non-bank financing companies These steps have ensured

that the financial system is functioning effectively without

suffering the kind of loss of confidence experienced in the

industrialised world

Having assured stability of the system the Government has

focused its attention on countering the impact of the global

recession on Indias economic growth On the monetary side the

RBI has sought to pump sufficient liquidity into the banking

system to enable bank credit to meet the expanded requirements of

the economy keeping in mind the contraction in credit from non-

bank sources Banks have been provided adequate liquidity through

a series of reductions in the CRR and additional flexibility in

meeting the SLR requirement Interest rate reductions have also

been signalled by reductions in the repo and reverse repo rates

the most recent of which was announced on Saturday when both the

repo rate and the reverse repo rate were cut by 100 basis points

Access to external commercial borrowings has also been

liberalised so that borrowers capable of accessing funds from

abroad are allowed to do so The banks are being encouraged to

counter what might otherwise become self-fulfilling negative

expectations by enhanced lending to support economic activity

These measures in the area of money and credit are being

supplemented by fiscal measures designed to stimulate the

economy In recognition of the need for a fiscal stimulus the

Nisa S Page 8

Impact of Stimulus Package

government had consciously allowed the fiscal deficit to expand

beyond the originally targeted level because of the loan waivers

issue of oil and fertilizer bonds and higher levels of food

subsidy In addition the following steps are being taken

Stimulus packages-

First Stimulus Package announced by Government of India on

7122008

Second Stimulus Package announced by Government of India on

212009

Third Stimulus Package announced by Government of India on

2422009

Fourth set of Stimulus provided through Foreign Trade Policy by

Government of India on 2622009

First Stimulus package-

1 Plan Expenditure

In order to provide a contra-cyclical stimulus via plan

expenditure the Government has decided to seek authorization for

additional plan expenditure of upto Rs 20000 crore in the

current year In addition steps are being taken to ensure full

utilization of funds already provided so that the pace of

expenditure is maintained The total spending programme in the

balance four months of the current fiscal year taking plan and

Nisa S Page 9

Impact of Stimulus Package

non-plan expenditure together is expected to be Rs 300000

crore

The economy will continue to need stimulus in 2009-2010 also and

this can be achieved by ensuring a substantial increase in plan

expenditure as part of the budget for next year

2 Reduction in Cenvat

As an immediate measure to encourage additional spending an

across-the-board cut of 4 in the ad valorem Cenvat rate will be

effected for the balance part of the current financial year on

all products other than petroleum and those where the current

rate is less than 4

3 Measures to Support Exports

i) Pre and post-shipment export credit for labour intensive

exports ie textiles (including handlooms carpets and

handicrafts) leather gems amp jewellery marine products and SME

sector is being made more attractive by providing an interest

subvention of 2 percent upto 3132009 subject to minimum rate of

interest of 7 percent per annum

ii) Additional funds of Rs 1100 crore will be provided to ensure

full refund of Terminal Excise dutyCST

iii) An additional allocation for export incentive schemes of Rs

350 crore will be made

Nisa S Page 10

Impact of Stimulus Package

iv) Government back-up guarantee will be made available to ECGC

to the extent of Rs 350 crore to enable it to provide guarantees

for exports to difficult marketsproducts

v) Exporters will be allowed refund of service tax on foreign

agent commissions of upto 10 percent of FOB value of exports

They will also be allowed refund of service tax on output

services while availing of benefits under Duty Drawback Scheme

4 Housing

Housing is a potentially very important source of employment and

demand for critical sectors and there is a large unmet need for

housing in the country especially for middle and low income

groups The Reserve Bank has announced that it will shortly put

in place a refinance facility of Rs 4000 crore for the National

Housing Bank In addition one of the areas where plan

expenditure can be increased relatively easily is the Indira Awas

Yojana As a further measure of support for this sector public

sector banks will shortly announce a package for borrowers of

home loans in two categories (1) upto Rs 5 lakhs and (2) Rs 5

lakh-Rs 20 lakh This sector will be kept under a close watch and

additional measures would be taken as necessary to promote an

accelerated growth trajectory

5 MSME Sector

The Government attaches the highest priority to supporting the

medium small and micro enterprises (MSMEs) sector which is

Nisa S Page 11

Impact of Stimulus Package

critical for employment generation To facilitate the flow of

credit to MSMEs RBI has announced a refinance facility of Rs

7000 crore for SIDBI which will be available to support

incremental lending either directly to MSMEs or indirectly via

banks NBFCs and SFCs In addition the following steps are being

taken

(a) To boost collateral free lending the current guarantee cover

under Credit Guarantee Scheme for Micro and Small enterprises on

loans will be extended from Rs 50 lakh to Rs 1 crore with

guarantee cover of 50 percent

(b) The lock in period for loans covered under the existing

credit guarantee scheme will be reduced from 24 to 18 months to

encourage banks to cover more loans under the guarantee scheme

(c) Government will issue an advisory to Central Public Sector

Enterprises and request State Public Sector Enterprises to ensure

prompt payment of bills of MSMEs Easing of credit conditions

generally should help PSUs to make such payments on schedule

6 Textiles

(a) An additional allocation of Rs 1400 crore will be made to

clear the entire backlog in TUF Scheme

(b) All items of handicrafts will be included under Vishesh

Krishi amp Gram Udyog Yojana

7 Infrastructure Financing

Nisa S Page 12

Impact of Stimulus Package

A large number of infrastructure projects are now being clearedfor implementation in the Public Private Partnership mode Theseprojects may experience difficulty in reaching financial closuregiven the current uncertainties in the financial world In orderto support financing of such projects Government has decided toauthorise the India Infrastructure Finance Company Limited(IIFCL) to raise Rs 10000 crore through tax-free bonds by3132009 These funds will be used by IIFCL to refinance banklending of longer maturity to eligible infrastructure projectsparticularly in highways and port sectors In this way it isexpected that IIFCL resources used for refinance can leveragebank financing of double the amount Depending on need IIFCLwill be permitted to raise further resources by issue of suchbonds In particular these initiatives will support a PPPprogramme of Rs 100000 crore in the highways sector

8 Others

(a) Government departments will be allowed to take up replacement

of government vehicles within the allowed budget in relaxation

of extant economy instructions

(b) Import Duty on Naphtha for use in the power sector will be

eliminated

(c) Export duty on iron ore fines will be eliminated and on lumps

will be reduced to 5

SECOND STIMULUS PACKAGE

The government and the Reserve Bank of India announced a second

stimulus package for the economy that includes a further easing

of liquidity and liberalization of various rules and regulations

to give a boost to spending and investment

Nisa S Page 13

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

government had consciously allowed the fiscal deficit to expand

beyond the originally targeted level because of the loan waivers

issue of oil and fertilizer bonds and higher levels of food

subsidy In addition the following steps are being taken

Stimulus packages-

First Stimulus Package announced by Government of India on

7122008

Second Stimulus Package announced by Government of India on

212009

Third Stimulus Package announced by Government of India on

2422009

Fourth set of Stimulus provided through Foreign Trade Policy by

Government of India on 2622009

First Stimulus package-

1 Plan Expenditure

In order to provide a contra-cyclical stimulus via plan

expenditure the Government has decided to seek authorization for

additional plan expenditure of upto Rs 20000 crore in the

current year In addition steps are being taken to ensure full

utilization of funds already provided so that the pace of

expenditure is maintained The total spending programme in the

balance four months of the current fiscal year taking plan and

Nisa S Page 9

Impact of Stimulus Package

non-plan expenditure together is expected to be Rs 300000

crore

The economy will continue to need stimulus in 2009-2010 also and

this can be achieved by ensuring a substantial increase in plan

expenditure as part of the budget for next year

2 Reduction in Cenvat

As an immediate measure to encourage additional spending an

across-the-board cut of 4 in the ad valorem Cenvat rate will be

effected for the balance part of the current financial year on

all products other than petroleum and those where the current

rate is less than 4

3 Measures to Support Exports

i) Pre and post-shipment export credit for labour intensive

exports ie textiles (including handlooms carpets and

handicrafts) leather gems amp jewellery marine products and SME

sector is being made more attractive by providing an interest

subvention of 2 percent upto 3132009 subject to minimum rate of

interest of 7 percent per annum

ii) Additional funds of Rs 1100 crore will be provided to ensure

full refund of Terminal Excise dutyCST

iii) An additional allocation for export incentive schemes of Rs

350 crore will be made

Nisa S Page 10

Impact of Stimulus Package

iv) Government back-up guarantee will be made available to ECGC

to the extent of Rs 350 crore to enable it to provide guarantees

for exports to difficult marketsproducts

v) Exporters will be allowed refund of service tax on foreign

agent commissions of upto 10 percent of FOB value of exports

They will also be allowed refund of service tax on output

services while availing of benefits under Duty Drawback Scheme

4 Housing

Housing is a potentially very important source of employment and

demand for critical sectors and there is a large unmet need for

housing in the country especially for middle and low income

groups The Reserve Bank has announced that it will shortly put

in place a refinance facility of Rs 4000 crore for the National

Housing Bank In addition one of the areas where plan

expenditure can be increased relatively easily is the Indira Awas

Yojana As a further measure of support for this sector public

sector banks will shortly announce a package for borrowers of

home loans in two categories (1) upto Rs 5 lakhs and (2) Rs 5

lakh-Rs 20 lakh This sector will be kept under a close watch and

additional measures would be taken as necessary to promote an

accelerated growth trajectory

5 MSME Sector

The Government attaches the highest priority to supporting the

medium small and micro enterprises (MSMEs) sector which is

Nisa S Page 11

Impact of Stimulus Package

critical for employment generation To facilitate the flow of

credit to MSMEs RBI has announced a refinance facility of Rs

7000 crore for SIDBI which will be available to support

incremental lending either directly to MSMEs or indirectly via

banks NBFCs and SFCs In addition the following steps are being

taken

(a) To boost collateral free lending the current guarantee cover

under Credit Guarantee Scheme for Micro and Small enterprises on

loans will be extended from Rs 50 lakh to Rs 1 crore with

guarantee cover of 50 percent

(b) The lock in period for loans covered under the existing

credit guarantee scheme will be reduced from 24 to 18 months to

encourage banks to cover more loans under the guarantee scheme

(c) Government will issue an advisory to Central Public Sector

Enterprises and request State Public Sector Enterprises to ensure

prompt payment of bills of MSMEs Easing of credit conditions

generally should help PSUs to make such payments on schedule

6 Textiles

(a) An additional allocation of Rs 1400 crore will be made to

clear the entire backlog in TUF Scheme

(b) All items of handicrafts will be included under Vishesh

Krishi amp Gram Udyog Yojana

7 Infrastructure Financing

Nisa S Page 12

Impact of Stimulus Package

A large number of infrastructure projects are now being clearedfor implementation in the Public Private Partnership mode Theseprojects may experience difficulty in reaching financial closuregiven the current uncertainties in the financial world In orderto support financing of such projects Government has decided toauthorise the India Infrastructure Finance Company Limited(IIFCL) to raise Rs 10000 crore through tax-free bonds by3132009 These funds will be used by IIFCL to refinance banklending of longer maturity to eligible infrastructure projectsparticularly in highways and port sectors In this way it isexpected that IIFCL resources used for refinance can leveragebank financing of double the amount Depending on need IIFCLwill be permitted to raise further resources by issue of suchbonds In particular these initiatives will support a PPPprogramme of Rs 100000 crore in the highways sector

8 Others

(a) Government departments will be allowed to take up replacement

of government vehicles within the allowed budget in relaxation

of extant economy instructions

(b) Import Duty on Naphtha for use in the power sector will be

eliminated

(c) Export duty on iron ore fines will be eliminated and on lumps

will be reduced to 5

SECOND STIMULUS PACKAGE

The government and the Reserve Bank of India announced a second

stimulus package for the economy that includes a further easing

of liquidity and liberalization of various rules and regulations

to give a boost to spending and investment

Nisa S Page 13

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

non-plan expenditure together is expected to be Rs 300000

crore

The economy will continue to need stimulus in 2009-2010 also and

this can be achieved by ensuring a substantial increase in plan

expenditure as part of the budget for next year

2 Reduction in Cenvat

As an immediate measure to encourage additional spending an

across-the-board cut of 4 in the ad valorem Cenvat rate will be

effected for the balance part of the current financial year on

all products other than petroleum and those where the current

rate is less than 4

3 Measures to Support Exports

i) Pre and post-shipment export credit for labour intensive

exports ie textiles (including handlooms carpets and

handicrafts) leather gems amp jewellery marine products and SME

sector is being made more attractive by providing an interest

subvention of 2 percent upto 3132009 subject to minimum rate of

interest of 7 percent per annum

ii) Additional funds of Rs 1100 crore will be provided to ensure

full refund of Terminal Excise dutyCST

iii) An additional allocation for export incentive schemes of Rs

350 crore will be made

Nisa S Page 10

Impact of Stimulus Package

iv) Government back-up guarantee will be made available to ECGC

to the extent of Rs 350 crore to enable it to provide guarantees

for exports to difficult marketsproducts

v) Exporters will be allowed refund of service tax on foreign

agent commissions of upto 10 percent of FOB value of exports

They will also be allowed refund of service tax on output

services while availing of benefits under Duty Drawback Scheme

4 Housing

Housing is a potentially very important source of employment and

demand for critical sectors and there is a large unmet need for

housing in the country especially for middle and low income

groups The Reserve Bank has announced that it will shortly put

in place a refinance facility of Rs 4000 crore for the National

Housing Bank In addition one of the areas where plan

expenditure can be increased relatively easily is the Indira Awas

Yojana As a further measure of support for this sector public

sector banks will shortly announce a package for borrowers of

home loans in two categories (1) upto Rs 5 lakhs and (2) Rs 5

lakh-Rs 20 lakh This sector will be kept under a close watch and

additional measures would be taken as necessary to promote an

accelerated growth trajectory

5 MSME Sector

The Government attaches the highest priority to supporting the

medium small and micro enterprises (MSMEs) sector which is

Nisa S Page 11

Impact of Stimulus Package

critical for employment generation To facilitate the flow of

credit to MSMEs RBI has announced a refinance facility of Rs

7000 crore for SIDBI which will be available to support

incremental lending either directly to MSMEs or indirectly via

banks NBFCs and SFCs In addition the following steps are being

taken

(a) To boost collateral free lending the current guarantee cover

under Credit Guarantee Scheme for Micro and Small enterprises on

loans will be extended from Rs 50 lakh to Rs 1 crore with

guarantee cover of 50 percent

(b) The lock in period for loans covered under the existing

credit guarantee scheme will be reduced from 24 to 18 months to

encourage banks to cover more loans under the guarantee scheme

(c) Government will issue an advisory to Central Public Sector

Enterprises and request State Public Sector Enterprises to ensure

prompt payment of bills of MSMEs Easing of credit conditions

generally should help PSUs to make such payments on schedule

6 Textiles

(a) An additional allocation of Rs 1400 crore will be made to

clear the entire backlog in TUF Scheme

(b) All items of handicrafts will be included under Vishesh

Krishi amp Gram Udyog Yojana

7 Infrastructure Financing

Nisa S Page 12

Impact of Stimulus Package

A large number of infrastructure projects are now being clearedfor implementation in the Public Private Partnership mode Theseprojects may experience difficulty in reaching financial closuregiven the current uncertainties in the financial world In orderto support financing of such projects Government has decided toauthorise the India Infrastructure Finance Company Limited(IIFCL) to raise Rs 10000 crore through tax-free bonds by3132009 These funds will be used by IIFCL to refinance banklending of longer maturity to eligible infrastructure projectsparticularly in highways and port sectors In this way it isexpected that IIFCL resources used for refinance can leveragebank financing of double the amount Depending on need IIFCLwill be permitted to raise further resources by issue of suchbonds In particular these initiatives will support a PPPprogramme of Rs 100000 crore in the highways sector

8 Others

(a) Government departments will be allowed to take up replacement

of government vehicles within the allowed budget in relaxation

of extant economy instructions

(b) Import Duty on Naphtha for use in the power sector will be

eliminated

(c) Export duty on iron ore fines will be eliminated and on lumps

will be reduced to 5

SECOND STIMULUS PACKAGE

The government and the Reserve Bank of India announced a second

stimulus package for the economy that includes a further easing

of liquidity and liberalization of various rules and regulations

to give a boost to spending and investment

Nisa S Page 13

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

iv) Government back-up guarantee will be made available to ECGC

to the extent of Rs 350 crore to enable it to provide guarantees

for exports to difficult marketsproducts

v) Exporters will be allowed refund of service tax on foreign

agent commissions of upto 10 percent of FOB value of exports

They will also be allowed refund of service tax on output

services while availing of benefits under Duty Drawback Scheme

4 Housing

Housing is a potentially very important source of employment and

demand for critical sectors and there is a large unmet need for

housing in the country especially for middle and low income

groups The Reserve Bank has announced that it will shortly put

in place a refinance facility of Rs 4000 crore for the National

Housing Bank In addition one of the areas where plan

expenditure can be increased relatively easily is the Indira Awas

Yojana As a further measure of support for this sector public

sector banks will shortly announce a package for borrowers of

home loans in two categories (1) upto Rs 5 lakhs and (2) Rs 5

lakh-Rs 20 lakh This sector will be kept under a close watch and

additional measures would be taken as necessary to promote an

accelerated growth trajectory

5 MSME Sector

The Government attaches the highest priority to supporting the

medium small and micro enterprises (MSMEs) sector which is

Nisa S Page 11

Impact of Stimulus Package

critical for employment generation To facilitate the flow of

credit to MSMEs RBI has announced a refinance facility of Rs

7000 crore for SIDBI which will be available to support

incremental lending either directly to MSMEs or indirectly via

banks NBFCs and SFCs In addition the following steps are being

taken

(a) To boost collateral free lending the current guarantee cover

under Credit Guarantee Scheme for Micro and Small enterprises on

loans will be extended from Rs 50 lakh to Rs 1 crore with

guarantee cover of 50 percent

(b) The lock in period for loans covered under the existing

credit guarantee scheme will be reduced from 24 to 18 months to

encourage banks to cover more loans under the guarantee scheme

(c) Government will issue an advisory to Central Public Sector

Enterprises and request State Public Sector Enterprises to ensure

prompt payment of bills of MSMEs Easing of credit conditions

generally should help PSUs to make such payments on schedule

6 Textiles

(a) An additional allocation of Rs 1400 crore will be made to

clear the entire backlog in TUF Scheme

(b) All items of handicrafts will be included under Vishesh

Krishi amp Gram Udyog Yojana

7 Infrastructure Financing

Nisa S Page 12

Impact of Stimulus Package

A large number of infrastructure projects are now being clearedfor implementation in the Public Private Partnership mode Theseprojects may experience difficulty in reaching financial closuregiven the current uncertainties in the financial world In orderto support financing of such projects Government has decided toauthorise the India Infrastructure Finance Company Limited(IIFCL) to raise Rs 10000 crore through tax-free bonds by3132009 These funds will be used by IIFCL to refinance banklending of longer maturity to eligible infrastructure projectsparticularly in highways and port sectors In this way it isexpected that IIFCL resources used for refinance can leveragebank financing of double the amount Depending on need IIFCLwill be permitted to raise further resources by issue of suchbonds In particular these initiatives will support a PPPprogramme of Rs 100000 crore in the highways sector

8 Others

(a) Government departments will be allowed to take up replacement

of government vehicles within the allowed budget in relaxation

of extant economy instructions

(b) Import Duty on Naphtha for use in the power sector will be

eliminated

(c) Export duty on iron ore fines will be eliminated and on lumps

will be reduced to 5

SECOND STIMULUS PACKAGE

The government and the Reserve Bank of India announced a second

stimulus package for the economy that includes a further easing

of liquidity and liberalization of various rules and regulations

to give a boost to spending and investment

Nisa S Page 13

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

critical for employment generation To facilitate the flow of

credit to MSMEs RBI has announced a refinance facility of Rs

7000 crore for SIDBI which will be available to support

incremental lending either directly to MSMEs or indirectly via

banks NBFCs and SFCs In addition the following steps are being

taken

(a) To boost collateral free lending the current guarantee cover

under Credit Guarantee Scheme for Micro and Small enterprises on

loans will be extended from Rs 50 lakh to Rs 1 crore with

guarantee cover of 50 percent

(b) The lock in period for loans covered under the existing

credit guarantee scheme will be reduced from 24 to 18 months to

encourage banks to cover more loans under the guarantee scheme

(c) Government will issue an advisory to Central Public Sector

Enterprises and request State Public Sector Enterprises to ensure

prompt payment of bills of MSMEs Easing of credit conditions

generally should help PSUs to make such payments on schedule

6 Textiles

(a) An additional allocation of Rs 1400 crore will be made to

clear the entire backlog in TUF Scheme

(b) All items of handicrafts will be included under Vishesh

Krishi amp Gram Udyog Yojana

7 Infrastructure Financing

Nisa S Page 12

Impact of Stimulus Package

A large number of infrastructure projects are now being clearedfor implementation in the Public Private Partnership mode Theseprojects may experience difficulty in reaching financial closuregiven the current uncertainties in the financial world In orderto support financing of such projects Government has decided toauthorise the India Infrastructure Finance Company Limited(IIFCL) to raise Rs 10000 crore through tax-free bonds by3132009 These funds will be used by IIFCL to refinance banklending of longer maturity to eligible infrastructure projectsparticularly in highways and port sectors In this way it isexpected that IIFCL resources used for refinance can leveragebank financing of double the amount Depending on need IIFCLwill be permitted to raise further resources by issue of suchbonds In particular these initiatives will support a PPPprogramme of Rs 100000 crore in the highways sector

8 Others

(a) Government departments will be allowed to take up replacement

of government vehicles within the allowed budget in relaxation

of extant economy instructions

(b) Import Duty on Naphtha for use in the power sector will be

eliminated

(c) Export duty on iron ore fines will be eliminated and on lumps

will be reduced to 5

SECOND STIMULUS PACKAGE

The government and the Reserve Bank of India announced a second

stimulus package for the economy that includes a further easing

of liquidity and liberalization of various rules and regulations

to give a boost to spending and investment

Nisa S Page 13

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

A large number of infrastructure projects are now being clearedfor implementation in the Public Private Partnership mode Theseprojects may experience difficulty in reaching financial closuregiven the current uncertainties in the financial world In orderto support financing of such projects Government has decided toauthorise the India Infrastructure Finance Company Limited(IIFCL) to raise Rs 10000 crore through tax-free bonds by3132009 These funds will be used by IIFCL to refinance banklending of longer maturity to eligible infrastructure projectsparticularly in highways and port sectors In this way it isexpected that IIFCL resources used for refinance can leveragebank financing of double the amount Depending on need IIFCLwill be permitted to raise further resources by issue of suchbonds In particular these initiatives will support a PPPprogramme of Rs 100000 crore in the highways sector

8 Others

(a) Government departments will be allowed to take up replacement

of government vehicles within the allowed budget in relaxation

of extant economy instructions

(b) Import Duty on Naphtha for use in the power sector will be

eliminated

(c) Export duty on iron ore fines will be eliminated and on lumps

will be reduced to 5

SECOND STIMULUS PACKAGE

The government and the Reserve Bank of India announced a second

stimulus package for the economy that includes a further easing

of liquidity and liberalization of various rules and regulations

to give a boost to spending and investment

Nisa S Page 13

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

In order to further ease liquidity and credit flow the Reserve

Bank of India also reduced the repo rate under the liquidity

adjustment facility (LAF) by 100 basis points from 65 per cent

to 55 per cent It also reduced the reverse repo rate by 100

basis points from 50 per cent to 40 per cent with immediate

effect

RBI also announced a reduction in the cash reserve ratio (CRR) of

scheduled banks by 50 basis points from 55 per cent to 50 per

cent from the fortnight beginning 17 January 2009

Besides the RBI announced a set of measures including a further

liberalization of the policy on external commercial borrowing

(ECB) under which

10486971048697 The all-in-cost ceilings on such borrowing would be

removed under the approval route of RBI

10486971048697 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

10486971048697 NBFCs dealing exclusively with infrastructure

financing would be permitted to access ECB from

Nisa S Page 14

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

multilateral or bilateral financial institutions under

the approval route of RBI

These decisions would be reviewed after 30 June 2009 In order to

give a boost to the corporate bond market FII investment limit

in rupee denominated corporate bonds in India would be increased

from $6 billion to $15 billion To further increase the flow of

credit to the economy the following measures have been suggested

1048697 1048697 A special purpose vehicle (SPV) will be designated

shortly to provide liquidity support against investment

grade paper to non-banking finance companies (NBFCs)

fulfilling certain conditions Details will be announced

separately The scale of liquidity potentially available

through this window is Rs 25000 crore

10486971048697 An arrangement will be worked out with leading public

sector banks to provide a line of credit to NBFCs

specifically for purchase of commercial vehicles

10486971048697 Credit targets of public sector banks are being revised

upward to reflect the needs of the economy in the present

difficult situation Government will closely monitor on

a fortnightly basis the provision of sectoral credit by

public sector banks

Nisa S Page 15

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

10486971048697 Special monthly meetings of state level bankers

committees would be held to oversee the resolution of

credit issues of micro small and medium enterprises by

banks Department of MSME and the department of financial

services will jointly set up a cell to monitor progress

on this front

10486971048697 The guarantee cover under Credit Guarantee Scheme for

micro and small enterprises on loans has earlier been

extended from Rs 50 lakh to Rs 1 crore with a guarantee

cover of 50 per cent It has now been decided to extend

the guarantee cover to 85 per cent for credit facility up

to Rs 5 lakh

10486971048697 State government will be allowed to raise additional

market borrowings of 05 per cent of their gross state

domestic product (GSDP) amounting to about Rs 30000

crore for capital expenditures in the current year

1048697 1048697India Infrastructure Finance Company (IIFCL) which has

already been authorised to raise Rs 10000 crore through

tax-free bonds by 31 March 2009 for refinancing bank

lending of longer maturity to eligible infrastructure

bid-based PPP projects will be accessing the market next

week for raising the first tranche of the amount

Nisa S Page 16

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

A number of steps have been announced to support exports which

has been severely hit by the appreciation of the rupee As a

further measure

10486971048697 To account for the loss due to currency value changes

it has been decided to restore DEPB rates to those

prevailing prior to November 2008 In order to provide

predictability and stability of regime in the short term

for future contracts the DEPB scheme would be extended

till 31 December 2009

10486971048697 Duty drawback benefits on certain items including knitted

fabrics bicycles agricultural hand tools and specified

categories of yarn have also been enhanced with

retrospective effect from 1 September 2008

1048697 1048697In order to address procedural issues the government

has decided to constitute a committee under the

chairmanship of the finance secretary and secretaries of

the departments of revenue and commerce as members to

look into and resolve these issues on a fast-track basis

10486971048697 EXIM Bank has obtained a Rs 5000 crore line of credit

from the RBI and will provide pre-shipment and post-

shipment credit in rupees or dollars to Indian

exporters at competitive rates

Nisa S Page 17

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

Other measures designed to counter recessionary trends include

1048697 1048697Exemptions from CVD on TMT bars and structurals and

from CVD and special CVD on cement

10486971048697 Full exemption from basic customs duty on zinc and ferro

alloys

10486971048697 The centre will also coordinate with the state

governments to encourage them release land for low income

and middle income housing schemes

10486971048697 States will be provided assistance under the JNNURM for

the purchase of buses for their urban transport systems

as a one-time measure up to 30 June 2009

10486971048697 Commercial vehicles would allowed be accelerated

depreciation of 50 per cent for purchases on or after 1

January 2009 and up to 31 March 2009

The government had taken a number of steps since 7 October to

minimise the impact of the global financial crisis on the Indian

economy These included

Additional plan expenditure of up to Rs20000 crore in the

current year mainly for critical rural infrastructure and

Nisa S Page 18

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

social security schemes such as Pradhan Mantri Gram Sadak Yojana

(PMGSY) Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) National Rural Employment Guarantee Scheme (NREGS)

Indira Awas Yojana Accelerated Irrigation Benefit Programme and

National Social Assistance Programme (NSAP)

An across-the-board cut of 4 per cent in ad-valorem Central

value-added tax (CENVAT) rate except for petroleum products

The Reserve Bank of India and the government had announced

several other measures to support exports housing micro small

and medium enterprises (MSME) and the textile sectors The

government had also authorising India Infrastructure Finance

Company Limited (IIFCL) to raise Rs 10000 crore to refinance

bank lending for infrastructure projects Subsequently other

measures have also been taken such as removal of ban on export of

cement

Third stimulus package-

Major points of package aremdash

1 Service Tax Rates reduction by 2 Now the Service Tax shall

be charged at 10 instead of 12 This will give relief to

Service Sector like telephone airlines ticket tour packages

health clubs beauty parlours drycleaners cyber cafes outdoor

catering transport of goods by air packaging maintenance and

Nisa S Page 19

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

repairs packages insurance banking sector etc that

constitutes 50 of countrys GDP

2 Central Excise Rate reduced by 2 Now the Central Excise Tax

shall be levied at 8 instead of 10 This reduction shall boost

demand of colour television sets washing machines

refrigerators air-conditioners soaps detergents hybrid cars

and commercial vehicles

3 Government announced that 4 across the board cut in Excise

Duty which was announced in the First Stimulus Package (in

December 2008) will be valid even beyond March 31 2009

4 Customs duty exemption on naphtha imports for generation of

electric energy has also been extended beyond March 31 2009

5 The Government slashed excise duty on bulk cement by 2 to 8

or Rs 60 per metric tonne to Rs 230 PMT This will bring down

the cost of housing and construction companies and give a fillip

to demand in the cement industry reeling under a slowdown The 2

cut in excise duty will also bring down the cost of steel for

this sector

6 GOI has extended the flexibility to states to deviate from

fiscal consolidation targets by 05 beyond March 31 2009 to

boost infrastructure and enable them to generate more employment

Fourth set of Stimulus Package

Nisa S Page 20

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

10486971048697 Duty Credit Scrips under Duty Entitlement Pass Book (DEPB)

Scheme to be issued without waiting for realization of export

proceeds

10486971048697 Special Package of Rs 325 crores for Leather and Textiles

sector

10486971048697 State Trading Corporation Ltd (STCL) Diamond India Metal

Scrap Trading Co (MSTC) Gem amp Jewellery Export Promotion

Council and Star Trading Houses added as nominated agencies

for import of precious metals

10486971048697 Gem and Jewellery export - import restrictions on worked

corals removed

10486971048697 Bhilwara and Surat recognized as towns of Export Excellence

for Textiles and Diamonds

10486971048697 Threshold limit for recognition as Premier Trading Houses

reduced to Rs 7500 crores

Impact of the stimulus package on various sectors

With the pressure shifting from inflation to growth we

are seeing aggressive rate cuts from the RBI in tandem with

Nisa S Page 21

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

other global economies The cut of 50 bps in CRR to 5 will

infuse about Rs 20000 crore in the system and will ease the

pressure on bankrsquos margins Also repo and reverse repo rate cuts

of 100 bps each will induce banks to further cut lending and

deposit rates and thereby reduce cost of funds for the Indian

corporate sector Though banks are still hesitant to lend in

spite of having adequate liquidity and are conserving cash we

may see some incremental credit offtake going ahead as the

government pushes credit targets of PSU banks

The two stimulus packages to push demand will take some more time

to yield results and stimulate growth in the economy

Inflation has fallen from the highs of above 12 to 63 and 10-

year G-sec yields are off their highs of above 9 to sub 6

(51) The downtrend in rates inflation and yields will

continue till the RBI is comfortable with the fact that economic

growth will not deteriorate further from hereon Even the RBI

Nisa S Page 22

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

seems to be extremely cautious on account of the global slowdown

and uncertain times ahead

Nisa S Page 23

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

Stimulus package for CVs

Accelerated depreciation for purchase of CVs (Jan ndash Marrsquo09) - 50

Vs 30

Likely arrangement between PSU banks with NBFCs for CV financing

One-time assistance to states until Junersquo09 towards purchase of

buses for urban transport systems The de-growth witnessed in

commercial vehicles (CVs) and plant shutdown (temporary)

announced by major original equipment manufacturers (OEM) are

indicators of a bleak outlook for the segment The announcement

of a fiscal package by government for the industry is a kind of a

light at the end of the tunnel The policies announced are

positives for the industry growth However stricter lending

norms and economic slowdown are the main hurdles for growth

going forward

Nisa S Page 24

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

Measures announced

bull Accelerated depreciation of 50 for commercial vehicles

purchased during January 1 2009 ndash March 31 2009 as against 30

normally available

- It is a positive step by the Centre as it would provide

additional incentives to customers

Nisa S Page 25

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

to replace existing vehicles or buy new ones in an effort to get

rebate on income tax

bull An arrangement to be worked out with public sector banks (PSU)

to provide a line of credit to non banking finance companies

(NBFCs) specifically for purchase of commercial vehicles

- Financing was the major concern This step would help in

improving lending which

would boost CV sales which would be a very positive step for CV

financing However

the success of this move depends upon PSU banksrsquo lending norms

bull A direct stimulus to sales of buses in one-time measurement up

to June 2009 Accordingly states will be provided assistance

under JNNURM (Central government sponsored scheme to encourage

urban development) for purchase of buses for their urban

transport systems

- This is a positive step for enhancing bus sales However how

effective it would be depends upon the financial position of most

states and its fund requirements for urban infrastructure The

government is also yet to announce the details of the scheme in

terms of quantum and criteria for bus purchases

The major boosters for CV sales are improving economic conditions

through improvement of industrial and agriculture production and

Nisa S Page 26

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

improvement in freight rates Some more positive steps from the

government are needed to boost the demand

Cement

CVD amp Special CVD re-imposed on imported cement

Measures announced

bull The government has re-imposed countervailing duty (CVD) of 8

and Special CVD (special additional duty of customs) of 4 on

imported cement thereby providing a level playing field for

domestic suppliers

bull In India cement is mostly imported in the northern states viz

Punjab Himachal Pradesh from Pakistan which was expected to be

08-10 MT in FY09 It constitutes less than 1 of the all-India

cement consumption and around 25 of the estimated consumption

in the northern region for FY09 Weak demand and imports has

suppressed the volume growth of the players in the northern

region forcing ACC to shut down its Gagal-II plant in HP

Subsequent to impositions of CVD and special duty the landed

cost of imported cement would be at par with prices in domestic

markets The landed cost of imported cement is likely to be in

Nisa S Page 27

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

the range of Rs 220-230 per 50 kg bag against the price of Rs 200

per bag before the imposition of duty

MWWwwwwwww211MMMMMMMMMMMETMETAMetals

Measures announced

bull Withdrawal of exemptions from CVD on TMT bars and structurals

bull Withdrawal of full exemption from basic customs duty on zinc

and ferro alloy

Impact analysis

In the second stimulus package announced on Friday January 2

2009 to boost the domestic economy along with other measures the

government has withdrawn the exemptions from countervailing duty

(CVD) on TMT bars and structurals

The government had earlier removed the 10 CVD that was imposed

on TMT bars and structurals to contain inflation and support the

real estate and infrastructure sectors However in the backdrop

of sharp correction in prices of TMT bars and structurals

globally and in the domestic markets the decision to withdraw

the exemption of CVD should help the domestic players at a time

when they are facing a slowdown in overall demand Companies like

RINL and SAIL are set to get the benefit of this move as along

with many small manufacturers of TMT bars these companies were

also taking a hit by selling those products at a price even lower

than the cost of production during the recent past due to low

demand and cheaper imports The second stimulus package has also

brought some good news for domestic manufactures of zinc and

Nisa S Page 28

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

ferro alloys as the government has announced the withdrawal of

the basic custom duty exemption on these two products The

government had earlier exempted 5 basic customs duty on zinc and

ferro alloys to bring down the prices of these products in the

domestic markets by encouraging cheaper imports with the main aim

of curbing soaring inflation However zinc prices have started

coming down sharply along with other metals and fell by more than

50 in 2008 due to demand slowdown and sharp build up of stocks

in LME warehouses posing threat to further cheaper imports

Ferro alloys prices have also come down significantly over the

past three to four months due to sharp downward correction in

steel and nickel prices and demand slowdown for stainless steel

In view of the above and a sharp fall in the headline inflation

coupled with a slowdown in the economy as a whole the government

has initiated the latest move which should help domestic

producers by protecting them against cheaper imports Hindustan

Zinc and JSW Steel among the big players is likely to be the

major beneficiaries of this move

Infrastructure

Measures announced

The government has permitted states to access the market for

borrowing about Rs 30000 crore to meet additional expenditure

during the year The government has eased the external commercial

borrowing (ECB) norms and hiked the foreign institutional

Nisa S Page 29

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

investor (FII) investment limit in rupee-denominated instruments

to $15 billion from the current ceiling of $6 billion

Impact analysis

Infrastructure companies that were facing constraints in

achieving financial closure for their projects can now breathe a

bit easy The second stimulus package will benefit all the

companies in the infrastructure space which have been facing

delays in achieving financial closure of their projects These

moves will surely inject some liquidity into the system which is

badly needed at this point of time The Government has allowed

IIFCL to raise Rs 30000 crore by way of tax free bonds for

refinancing projects mainly in the highway and port sectors The

companies which will benefit the most are Hindustan Construction

Company and Nagarjuna Construction Company as they have more

exposure towards the road sector GMR Infra and Reliance Power

will also benefit as these companies are in the process of

achieving financial closure of their announced projects and these

moves will help them achieve it

Textiles

Measures announced

The second stimulus package that has been announced has very

little in store for the textile sector which has been unable to

satisfy the industryrsquos demands

Nisa S Page 30

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

bull The reduction in CRR repo and reverse repo rate is expected to

benefit the textile companies with high debt and aggressive

expansion plans like Alok Industries and Bombay Rayon Fashions

bull The government extended the Duty Entitlement Passbook (DEPB)

scheme till December 31 2009 and restored the rates at those

prevailing prior to November 2008 ie 7 (increase of 3 from

current 4) This may improve the competitiveness of the textile

exporters against other low-cost countries like China Pakistan

Vietnam and others

bull Duty drawback rates on knitted fabrics and specified varieties

of yarn have been enhanced with

retrospective effect from September 1 2008

bull EXIM Bank has obtained a line of credit of Rs 5000 crore from

the RBI and will provide pre-shipment and post-shipment credit

in rupees or dollars to Indian exporters at competitive rates

The textile sector contributes approximately 13 to the overall

exports from India

Impact analysis

Nisa S Page 31

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

The above measures will benefit though very marginally the

exporting companies in the textile sector like Gokaldas Exports

Bombay Rayon Fashions Welspun India and Alok Industries The

industry had raised the following demands in order to facilitate

growth which have not been considered yet

bull Two-year moratorium on repayment of loans

bull A special package for working capital consisting of 7 interest

rate for cotton purchase

bull Reduction in margin money for working capital from 25 to 10

bull Enhancement of credit limit from three months to nine months

bull A 2 increase in the interest subvention for export credit

Nisa S Page 32

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

Conclusion

Government and the Reserve Bank of India responded to the

challenge in close coordination and consultation The main plank

of the government response was fiscal stimulus while the Reserve

Bankrsquos action comprised monetary accommodation and counter

cyclical regulatory measures

The main objectives behind the stimulus packages were to maintain

a comfortable rupee liquidity position to augment foreign

exchange liquidity and to maintain a policy framework that would

keep credit delivery on track so as to arrest the moderation in

growth This marked a reversal of Reserve Bankrsquos policy stance

from monetary tightening in response to heightened inflationary

pressures of the period to monetary easing in response to easing

inflationary pressures and moderation in growth in the current

cycle

Over the last few years India clocked an unprecedented 9

growth driven largely by domestic consumption and investment

even as the share of net exports has been rising True the

benign global environment easy liquidity and low interest rates

Nisa S Page 33

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

helped but at the heart of Indiarsquos growth were a growing

entrepreneurial spirit rise in productivity and increasing

savings These fundamental strengths continue to be in place

Once the global economy begins to recover Indiarsquos turn around

will be sharper and swifter backed by the strong fundamentals

and the untapped growth potential and the challenge for the

government and the RBI is to manage the adjustment with as

little pain as possible

Bibliography

Duvvuri Subbarao speech on ldquoIndia- Managing the Impact of the

Global Financial Crisisrdquo March 2008

FT Knowledge Management year end review Jan 2009

Duvvuri Subbarao Global financial crisis ndash Questioning the

questions-(article)

Edelweiss ldquoIndia Stimulus Packagerdquo Dec 8 2008

Nisa S Page 34

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35

Impact of Stimulus Package

The Present Economic Crisis and its Impact on India [Speech by

Shri Yogesh Agarwal CMD IDBI Bank Ltdat the Haryana Institute

of Public Administration Dec 20 2008]KKPMG in India

KPMG in India Second Fiscal Stimulus Package- ldquoImpact on the

infrastructure and real estate sectorrdquo 06 Jan 2009

Different Economic Stimulus Packages for Easing Difficulties of

Micro Small and Medium Sector Enterprises Office of the

Commissioner of Industries Udyog Bhawan Tilak Marg Jaipur-302

005

Global Financial and Economic Crisis Impact on India and Policy

Response

Rajiv KumarDirector amp Chief ExecutiveIndian Council for

Research on International

Economic Relations (ICRIER) New Delhi

nfrastructure and real estate sector

Infrastructure Real Estate amp Government 06 January 2009Second

Fiscal Stimulus Package

- Impact on the infrastructure and real estate sector

Nisa S Page 35