The government has been provoked into launching, jointly with the Reserve Bank, another frontal assault on torpid demand and loan scarcity. With earlier stimulus packages having failed to revive the limp economy, and with general elections now just three or four months away, smugness seems to have visibly given way to panic. The government has said this might be the last stimulus package for this fiscal year. Also, this year’s budget is likely to be a vote-on-account. Friday’s giveaways thus had the feel of a mini-budget, minus the usual trappings of personal tax rate changes.The government announced a slew of measures that broadly aim to provide booster shots to the housing sector, improve the credit flow (both domestic and overseas loans) to financial and manufacturing companies, accelerate the sales of trucks and buses, catalyse infrastructure projects and resurrect exports. On its part, the RBI has cut its key interest rates and ensured additional money flow into the system. The RBI had last cut rates just a month ago, on December 8. However, initial reactions do not seem to indicate that this package will be enough to get the economy back in fighting shape. On being asked whether the second package was prompted by the failure of the first one, planning commission deputy chairman Montek Singh Ahluwalia said, “The packages are announced as the situation evolves. Both packages announced so far should be good enough to ensure 7% growth in the current fiscal, which is satisfactory in the light of the global crisis.’’ The proximate reasons for the alarm are clearly the disappointing economic data—with the exception of the inflation rate—that have been released in the recent past. On inflation, while the wholesale index has been dropping, the consumer index is still to show moderation. The index of industrial production for October has slipped into negative territory, implying industry produced less than what it did in October 2007. The index grew by only 4.1% during April-October, which is less than half the 9.9% witnessed during the same period of 2007. Exports during both October and November declined, indicating that the slump might be more severe than was assumed earlier. Even auto and two-wheeler sales remained depressed during December, despite the excise duty cuts provided on the 7th. The government has taken the onslaught into the enemy camp—slowdown in demand and an unprecedented loan drought for the corporate sector. It has tried to rejuvenate demand by stimulating the housing and transport sectors which have deep, ancillary knock-down effects and any push there is likely to benefit other sectors too.
RBI cuts CRR 50 basis pts -Infuses Rs 20,000 crore into system, in addition to over Rs 3 lakh crore freed over past three months ,reduces repo rate by 100 bps to 5.5%, an eight-and-a-half year low - Banks may cut loan, deposit rates .Cuts reverse repo rate 100 bps to 4% - Banks may be forced to lend more. Cost ceilings removed for ECBs - Frees corporates to hunt for funds overseas. NBFCs into infrastructure funding exclusively can borrow from multilateral, bilateral institutions - Opens up financing earlier available only to state-owned units. Integrated townships can access ECBs - Boost for housing sector . FII investment limit in rupeedenominated corporate bonds hiked to $15bn from $6bn - Provides corporates with an alternative funding platform. Centre to ask states to release land for low- and middle-income housing - Will catalyze housing activity, could have political dividends too. New company created to funnel Rs 25,000cr into finance companies - Liquidity for vital financing component in the economy. States allowed to raise Rs 30k cr through market borrowings - Burden of expenditure shifts to states, while boosting local demand . India Infrastructure Finance Co can access extra Rs 30,000cr through tax-free bonds in addition to the Rs 10,000cr allowed earlier - Expected to kickstart infrastructure projects worth Rs 1 lakh crore. Government addresses loan crisis faced by Indian companies .Therefore, look at what has been proposed for the auto sector, especially trucks and buses—public sector banks will provide special credit to finance companies that give out loans for buying trucks, to states to get funds from the Centre’s urban development schemes to buy buses, and to fleet owners who can save on taxes if they buy trucks between January 1 and March 31. Similarly, for the housing sector, there is a host of measures apart from the RBI’s rate cuts which are expected to translate into cheaper housing loan rates. Integrated townships can now access foreign loans and Delhi will cajole states to release land for lower and middle income housing schemes so that there is a concerted increase in activity. These come over and above the earlier decisions which provided concessional rates for loans up to Rs 20 lakh. There is an attempt to shift some of the expenditure burden from the Centre to the states in the hope that money spent by the states on local projects will also help in demand invigoration. States have been allowed to borrow Rs 30,000 crore extra, in addition to their budgeted loans, from the market. The government has tried to address the loan famine faced by Indian companies. For one, it has made it easier for them to access foreign currency loans by removing the ceiling on interest rates. However, there are still no indications whether international banks have got back into a lending mood. Second, foreign investors have been allowed to invest more in rupee bonds floated by Indian companies—now $15 billion against the $6 billion earlier. Third, credit targets for all PSU banks are being revised upwards. In addition, it’s hoped that the fusillade of rate cuts and repeated money pumping by the RBI will finally unclog the economy’s financial arteries. Some domestic sectors such as cement, TMT bars and structurals (used mainly in construction activity), zinc and ferro alloys—have got a special leg-up after the government has made it slightly more expensive to import these items. This has been achieved by re-imposing duties that were waived briefly when the government was combating inflation. There is also acceptance of the important role that NBFCs (non-banking finance companies) play in the whole economic chain. The second package has a lot that attempts to keep them liquid. Those in the infrastructure business exclusively (for example, Infrastructure Development Finance Corporation) can now access foreign exchange loans from global institutions that provide concessional credit. A special company will be floated soon to funnel Rs 25,000 crore into NBFCs and PSU banks will provide special loans to them for financing truck purchases. Shaken up by the rapidly deteriorating export numbers (exports contribute roughly 12-15% to the country’s economy), there is a special section for exporters too that tries to put more cash into their hands in the face of depleting earnings. The government is also hoping that the money now invested in infrastructure will yield results that will be in multiples of the initial capital. It has allowed India Infrastructure Finance Co Ltd to raise an additional Rs 30,000 crore through tax free bonds, over and above the Rs 10,000 crore that was sanctioned a month ago. In total, this is expected to spur Rs 100,000 crore of investment in infrastructure projects over the next three to six months.
RBI cuts CRR 50 basis pts -Infuses Rs 20,000 crore into system, in addition to over Rs 3 lakh crore freed over past three months ,reduces repo rate by 100 bps to 5.5%, an eight-and-a-half year low - Banks may cut loan, deposit rates .Cuts reverse repo rate 100 bps to 4% - Banks may be forced to lend more. Cost ceilings removed for ECBs - Frees corporates to hunt for funds overseas. NBFCs into infrastructure funding exclusively can borrow from multilateral, bilateral institutions - Opens up financing earlier available only to state-owned units. Integrated townships can access ECBs - Boost for housing sector . FII investment limit in rupeedenominated corporate bonds hiked to $15bn from $6bn - Provides corporates with an alternative funding platform. Centre to ask states to release land for low- and middle-income housing - Will catalyze housing activity, could have political dividends too. New company created to funnel Rs 25,000cr into finance companies - Liquidity for vital financing component in the economy. States allowed to raise Rs 30k cr through market borrowings - Burden of expenditure shifts to states, while boosting local demand . India Infrastructure Finance Co can access extra Rs 30,000cr through tax-free bonds in addition to the Rs 10,000cr allowed earlier - Expected to kickstart infrastructure projects worth Rs 1 lakh crore. Government addresses loan crisis faced by Indian companies .Therefore, look at what has been proposed for the auto sector, especially trucks and buses—public sector banks will provide special credit to finance companies that give out loans for buying trucks, to states to get funds from the Centre’s urban development schemes to buy buses, and to fleet owners who can save on taxes if they buy trucks between January 1 and March 31. Similarly, for the housing sector, there is a host of measures apart from the RBI’s rate cuts which are expected to translate into cheaper housing loan rates. Integrated townships can now access foreign loans and Delhi will cajole states to release land for lower and middle income housing schemes so that there is a concerted increase in activity. These come over and above the earlier decisions which provided concessional rates for loans up to Rs 20 lakh. There is an attempt to shift some of the expenditure burden from the Centre to the states in the hope that money spent by the states on local projects will also help in demand invigoration. States have been allowed to borrow Rs 30,000 crore extra, in addition to their budgeted loans, from the market. The government has tried to address the loan famine faced by Indian companies. For one, it has made it easier for them to access foreign currency loans by removing the ceiling on interest rates. However, there are still no indications whether international banks have got back into a lending mood. Second, foreign investors have been allowed to invest more in rupee bonds floated by Indian companies—now $15 billion against the $6 billion earlier. Third, credit targets for all PSU banks are being revised upwards. In addition, it’s hoped that the fusillade of rate cuts and repeated money pumping by the RBI will finally unclog the economy’s financial arteries. Some domestic sectors such as cement, TMT bars and structurals (used mainly in construction activity), zinc and ferro alloys—have got a special leg-up after the government has made it slightly more expensive to import these items. This has been achieved by re-imposing duties that were waived briefly when the government was combating inflation. There is also acceptance of the important role that NBFCs (non-banking finance companies) play in the whole economic chain. The second package has a lot that attempts to keep them liquid. Those in the infrastructure business exclusively (for example, Infrastructure Development Finance Corporation) can now access foreign exchange loans from global institutions that provide concessional credit. A special company will be floated soon to funnel Rs 25,000 crore into NBFCs and PSU banks will provide special loans to them for financing truck purchases. Shaken up by the rapidly deteriorating export numbers (exports contribute roughly 12-15% to the country’s economy), there is a special section for exporters too that tries to put more cash into their hands in the face of depleting earnings. The government is also hoping that the money now invested in infrastructure will yield results that will be in multiples of the initial capital. It has allowed India Infrastructure Finance Co Ltd to raise an additional Rs 30,000 crore through tax free bonds, over and above the Rs 10,000 crore that was sanctioned a month ago. In total, this is expected to spur Rs 100,000 crore of investment in infrastructure projects over the next three to six months.
No comments:
Post a Comment