Govt. announces Rs.20,000 crore economic stimulus package, India Inc. wants more

A day after the central bank announced a slew of monetary measures to ease tight liquidity conditions in the system and bring down loan rates, the government said it was scrapping import duty on naphtha for the power sector until March 31, 2009 and export duty on iron ore fines while on lumps it will be reduced to 5 percent from 15 percent earlier.

The government also said it would let a state-run infrastructure lender, India Infrastructure Finance Co. Ltd. (IIFCL), issue tax-free bonds worth Rs.10,000 crore ($2 billion) and cut a central valued-added tax (Cenvat) rate by four percentage points on all manufactured products other than petroleum and those where current rate is less than 4 percent. The proposed cut brings down Cenvat on big cars to 20 percent, cement to 10 percent and cotton textile to nil.

The government also promised to allocate more funds for incentives on exports, including fully exempting 18 services rendered to exporters from service tax, and providing interest subsidy of 2 percentage points on bank loans of exporters in textile, leather and jewellery sectors.

The government also agreed to refund excise duties and sales taxes worth Rs.1100 crore to exporters and provide extra Rs.350 crore for export incentive schemes.

Additional export credit guarantee of Rs.350 crore for firms facing difficulty in key markets would be provided, it added.

Additionally, the government said it would provide an extra Rs.1400 crore for modernizing the textile industry, through a technology upgrade funding scheme.

To boost corporate borrowings and real estate sector, the government also promised that banks would be provided guarantee for extending collateral-free loans up to Rs.1 crore to small firms and state-run banks would announce package for borrowers of home loans up to Rs.20 lakhs.

"The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity," it said in a statement.

The economic stimulus package allows India to join global peers in pumping cash as credit markets freeze though Sunday's announcement falls far short of neighboring China's $586 billion package unveiled in November.