Indian economic stimulus package

By: EconomyWatch   Date: 30 June 2010

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Indian economic stimulus package was announced in December 2008 to cushion impact of global financial crisis. National government announced an economic stimulus package of $4 billion to shield its economy from recession. A substantial increase in government expenditure coupled with a cut in interest rates by Reserve Bank of India aim towards raising aggregate demand.

A number of incentives have been announced in economic stimulus package of India. These have been drawn up by government to infuse a sense of optimism in minds of investors and industrialists. Incentive schemes in Indian economic stimulus amounting to $70 million have been allocated to boost exports. Measures have been taken to boost exports of labor intensive commodities like textiles and handicrafts to provide stimulus to Indian economic retrieval. Lending rates on housing loans for low and middle income segments have been reduced. Medium and small businesses are being provided tax exemptions and tax holidays. Value added tax has been cut at different levels and across products to increase spending. Reserve Bank of India has reduced its lending rate to 6.5% and its borrowing rate to 5%.

Central Value Added Tax (CENVAT) reduced by 4%, has brought down prices of cement, textiles, and cars. CENVAT on non-petroleum products has been slashed by up to ten percent thereby significantly affecting Indian economic recovery. Customs duty on naphtha, an intermediary product for power industry, has been completely revoked. To provide an impetus to export, duty on export of iron ore fines have been removed and levy on iron lump exports has been cut from 15% to 5%.

A 10-point India economic stimulus package program, charted by Prime Minister Manmohan Singh, is targeted at reviving most badly affected sectors of Indian economy like housing, automobiles, infrastructure, power and medium and small industries. A funding of Rs.300 billion has been earmarked for this. An additional funding of Rs.100 billion in form of tax free bonds has been earmarked for India Infrastructure Finance Company Limited. Montek Singh Ahluwalia, Deputy Chairman of Planning Commission, has commented that this 10-point package is set to force manufacturers to operate in a competitive environment and pass on taz benefits to end users.



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