STIMULUS PACKAGE NO.2

To boost Indian econony, Government on 2nd Jan 09 announced the second and final instalment of its fiscal stimulus package. RBI also has taken fresh monetary easing measures which along with the sops in stimulus package are expected to boost credit availability, offer additional sops to exporters and the small sector, raise the level of protection for steel, cement besides incentivsing accelerated purchase of commercial vehicles.

The salient features of the stimulus package and RBI's monetary measures are summarised as follows:

• All - in  cost ceilings for External Commercial Borrowings ( ECB) via approval route  removed.
• Developers of integrated townships can access foreign borrowing.
• NBFC  ( Non banking finance companies)  in infrastructure can access ECB s for core sector funding. A dedicated investment window of 250 billion rupees for NBFC s is approved. NBFC s can raise funds from this window against investment grade paper.
• FII investment limit in corporate bonds is raised to $ 15 bn from $ 6 bn.
• States are allowed to go for additional market borrowing of 0.5 % of state GDP.
• Duty Exemeption Passbook scheme (DEPB)  for exporters is extended up to 31st Dec 2009.
• Customs duty exemption on Zinc, and Ferro alloys is withdrawn. Duty exemption on TMT bars, structurals is withdrawn. CVD and special CVD on cement are withdrawn.
• Union Government will give assistance to states for purchase of buses for urban transport.
• Credit disbursal targets of PSU Banks are being raised.
• PSU Banks are to be recapitalised by Rs.20000 crs over next 2 years.
• IIFCL ( India Infrastructure Finance Company Ltd)  is allowed to raise Rs.30000 crs through tax free bonds.

         RBI ' s measures :

•         Repo rate is reduced by 100 bp from 6.5 %  to 5.5 % ( signal to banks to reduce rates further)
•         Reverse Repo rate is reduced by   100 bp from 5 %  to 4 % ( signal to banks not to park idle funds with RBI)
•         Cash Reserve Ratio is reduced by  50  bp from  5.5 % to 5 % ( Rs.20000 crs more freed  for banks to lend)
•         RBI gives Rs.50 bn line of credit to Exim Bank for providing cheaper export credit to exporters.