Indian Government Unveils Second Stimulus Package

by Lorys Charalambous, Tax-News.com, Cyprus

13 January 2009

The Indian authorities have put together a second stimulus package, it emerged recently, which is designed to complement the tax measures announced in December, in boosting the sagging economy.

The new bundle of measures aims to support small and medium-sized enterprises (SMEs), exporters not targeted by earlier initiatives, and the textile and real estate sectors.

In a statement on the new measures, the Indian authorities revealed that:

"With a view to further liberalizing the policy on External Commercial Borrowing (ECB), the government and the RBI have decided: (a) The ‘all-in-cost’ ceilings on such borrowing would be removed, under the approval route of RBI; (b) To facilitate access to funds for the housing sector, the ‘development of integrated townships’ would be permitted as an eligible end-use of the ECB, under the approval route of RBI; (c) NBFCs, dealing exclusively with infrastructure financing, would be permitted to access ECB from multilateral or bilateral financial institutions, under the approval route of RBI; (d) In order to give a boost to the corporate bond market, FII investment limit in rupee denominated corporate bonds in India would be increased from USD6bn to USD15bn."

The government went on to reveal that:

"State governments are facing constraints in financing expenditure because of slower revenue growth. To help maintain the momentum of expenditure at the state government level, states will be allowed to raise in the current financial year additional market borrowings of 0.5% of their Gross State Domestic Product (GSDP), amounting to about INR30,000 crore (INR300bn), for capital expenditures."

In addition, duty drawback benefits on certain items including knitted fabrics, bicycles, agricultural hand tools and specified categories of yarn have been enhanced, retroactive to September 1, 2008.

The Indian government has stated that it does not envisage any further measures in the current fiscal year, disappointing some observers, who have bemoaned the paucity of tax-related measures in the second stimulus package.

In December 2008, the authorities announced various reforms, including an across the board cut of 4% in the ad valorem excise tax rate, amongst other measures.

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