Govt Unveils Its Second Stimulus For Slowing Economy

By | January 2, 2009

Key Highlights

# Govt eases ceiling on ECB borrowings as part of the second stimulus package.

# IIFCL allowed to raise Rs 30,000 crores via tax free bonds.

# Recapitalize PSU banks by Rs 20,000 cr in two years.

# Custom exemption on zinc and ferro alloys has been withdrawn

# NBFCs in infrastructure sector can access ECBs.

# FII investment limit in corporate bonds raised from 6 billion to 15 billion dollars.

# Govt extends tax incentive scheme for exporters up to Dec 31.

# State governmnet allowed to market borrowing of 0.5 per cent of GDP.

India on Friday said it would ease foreign borrowing rules for firms in the infrastructure and real estate sectors, and raised the foreign investment limit in corporate bonds to $15 billion.

As it unveiled a second stimulus package moments after the central bank slashed its main policy rates for a slowing economy, the government said it was preparing to recapitalise state-run banks to the tune of 200 billion rupees ($4.1 billion).

This would take place over the next two years to ensure the banking system does not suffer from capital adequacy constraints.

It allowed the creation of a special financing entity to provide liquidity support against investment grade paper to non-banking finance companies.

The statement said the liquidity potentially available though this window would be 250 billion rupees.

India’s economy, Asia’s third-biggest, has shown consistent signs of slowing amid the worldwide downturn and high borrowing costs at home, after growing at 9 percent or above for the past three years.

Economists and government advisers and officials expect expansion to moderate to around 7 percent this fiscal year and the central bank’s chief said last month that 2009/10 looked like being an even more challenging year.

In early December, Indian authorities cut policy rates, announced $4 billion in extra spending and rolled out a four-percentage point cut in factory gate duties in an attempt to boost flagging activity.

Adding to concerns over stumbling economic growth, data on Thursday showed India’s exports contracting 9.9 percent in November from a year earlier, the second consecutive fall after a 12.1 percent dip in October.

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