The UPA government and the Reserve Bank of India, on January 2, implemented a series of measures to address issues relating to monetary supply, infrastructure financing and merchandise exports. The "cost" of this fiscal package is estimated at Rs 40,000 crore.
Here is a summary of measures announced.
Repo rates: RBI announced a cut in repo rate from the earlier 6.5 per cent to 5.5 per cent. The reverse repo rate has been slashed to 4 per cent, by 100 basis points. Repo rate is the interest rate at which RBI lends to banks, while the reverse repo rate is that offered by RBI for banks that park surplus funds with the apex bank.
CRR: RBI announced a 50 basis point reduction in the cash reserve ratio to 5 per cent. This is expected to release an additional Rs 20,000 crore in the banking system. The CRR is that percentage of bank deposits that has to be maintained with RBI.
ECB: The 'all-in-cost' ceilings on ECBs have been removed for borrowings under the RBI's approval route. The housing sector has also got some relief, with ECB access for the development of integrated township. Foreign institutional investors have been allowed to invest up to $15 billion in corporate bonds, up from the current $6 billion.
NBFC: Public sector banks will now provide a line of credit to non-banking finance companies specifically for purchase of commercial vehicles. NBFCs dealing exclusively with infrastructure financing can access ECBs from multilateral or bilateral financial institutions, after RBI approval. A special purpose vehicle will be designated shortly to provide liquidity support against investment grade paper to NBFCs, which potentially opens a Rs 25,000-crore financing window.
Infrastructure: On the infrastructure front, India Infrastructure Finance Company Ltd will be allowed to access an additional Rs 30,000 crore in tranches through tax-free bonds. This will help fund additional projects of about Rs 75,000 crore at competitive rates over the next 18 months. IIFCL, which was earlier authorised to raise Rs 10,000 crore through tax-free bonds by March 31, 2009, will be accessing the market next week for raising the first tranche of the amount.
State governments: States will be allowed to raise in the current financial year additional market borrowing of 0.5 per cent of their gross state domestic product, amounting to Rs 30,000 crore, for capital expenditure.
Exports: The Centre has decided to restore duty entitlement passbook rates to those prevailing prior to November 2008. Besides the DEPB scheme will now be extended till end-December this year. Also, duty drawback benefits on certain items including knitted fabric, bicycles and specified categories of yarn are being enhanced.
Duties: The other measures to counter recessionary trends include withdrawal of exemption from countervailing duty on TMT bars and structurals. The exemption on CVD and special CVD on cement has been withdrawn. Also, full exemption from basic customs duty on zinc and ferroalloys is also being withdrawn. The exemptions were earlier introduced to contain inflation.
The Centre's first fiscal stimulus package was announced on December 7, 2008. It cost the government around Rs 31,000 crore, including additional plan expenditure of Rs 20,000 crore and a 4-percentage-point cut in excise duty. The combination of monetary and fiscal steps taken this fiscal would result in additional credit of Rs 56,000 crore in the fourth quarter.
'Positive feeler for the market'
— Rohtas Goel, CMD, Omaxe Ltd
RBI's rate revision is a welcome step as it would result in releasing more money into the banking system. The reduction in the CRR will inject additional liquidity of around Rs 20,000 crore to the financial system. The cut in REPO rate and reverse REPO rate is also a positive feeler for the market.
We appreciate the step taken by the government on removing ceiling on ECB borrowing which will further facilitate access to funds for the housing sector and will further permit the 'development of integrated townships' as an eligible end-use of the ECB, under the approval route of RBI. Corporates can look forward to availability of more funds for development.
Overall the package and rate cut will revive the sector of real estate and infrastructure boosting the economy while bringing up the demand and keeping the pace with supply.
'Right direction, but not quite impacting'
— Vinayak Chatterjee, Chairman, Feedback Ventures
The package has a few welcome measures like further easing of liquidity and interest rates by RBI. This is certainly going to make conditions a little easier for infrastructure developers, contractors and the housing market. Recapitalisation of PSU banks by Rs 20,000 crore will partially address the asset-liquidity mismatch for lenders to the infrastructure sector.
The intent of allowing IIFCL to raise further Rs 30, 000 crore in the foreseeable future is in the right direction. However, infra experts are quite certain that ongoing and future projects in PPP and public domain together required a Rs 100,000-crore package. Stimulus 1 and Stimulus 2 have addressed only Rs 10,000 + 30,000 crore respectively.
It is still not clear how exactly IIFCL will be deploying this. The first stimulus package left out ongoing projects. That was a serious omission considering the development phase of infra projects is not less than three years If there is going to be a third stimulus package, it must then be a thorough shakeup of the administrative setup as 80 per cent of infrastructure is through public expenditure.
'Package will stimulate real estate'
— Ajay Aggarwal, Director, Suncity Projects Pvt. Ltd
After a slow growth in the previous year we enter into the New Year with good news in the very beginning. We welcome the move by government and RBI sending in stimulus to our real estate sector. The cut in CRR and repo rate cut will pump in more liquidity bringing in stability for the sector. We expect that these financial tools will result in easier and cheaper home loan for buyers.
An important step taken by the government is allowing external commercial borrowings that will help against paucity of funds for the integrated township division to the real estate sector. Overall, the package is a stimulus to real estate sector benefiting both the buyers and developers.
Source : www.projectsmonitor.com
|