A tax cut that will make cars and many consumer products cheaper, a package that will encourage low income housing, and above all, a fiscal incentive that could support Rs 100,000 crore worth of road projects underlined the government’s urgency to spur a slowing economy.
In a mini-budget of sorts, the government on Sunday slashed the central value added tax (a tax imposed by the Centre at different stages of the manufacturing process) by 4 percentage points for the rest of this financial year, and unveiled a Rs 35,000 crore fiscal package that includes tax breaks for beleaguered exporters.
<b1>All told, the total spending programme in the last four months of the current financial year is expected to be Rs 300,000 crore, an official statement said. This fiscal package is aimed at boosting growth in exports, real estate, auto, textiles, small and medium industries, and highways. It should help generate jobs in the textiles sector, the largest employer among industries.
It will also spur growth in the automobiles and cement sectors, considered to be barometers of the country’s manufacturing activity.
These, coupled with a petrol and diesel price cut by Rs 5 and Rs 3 per litre respectively on Friday, and an interest rate cut by Reserve Bank of India on Saturday, are aimed at boosting economic growth.
Following the package, the auto sector stepped on the price cuts accelerator. Maruti Suzuki, Tata Motors, GM India and Mahindra & Mahindra announced that they would pass on the entire benefit of the tax cuts to consumers.
On the highways front, India Infrastructure Finance Company Ltd, the apex institution that lends to companies building highways and ports, has been allowed to raise Rs 10,000 crore through tax free bonds by March 2009 as part of an effort to support a Rs 100,000 crore programme in building roads.
For the housing sector, public sector banks will shortly announce a package for borrowers of home loans in two categories — upto Rs 5 lakh, and Rs 5 lakh to Rs 20 lakh.
“This sector will be kept under a close watch and additional measures would be taken as necessary to promote an accelerated growth trajectory,” the statement said.
In a bid to boost the textile sector, an additional allocation of Rs 1,400 crore will be made to clear the entire backlog in the technology upgradation fund scheme (TUF) that allows reimbursement to textile companies investing in technology upgradation.
With all these steps in place — more will be taken if required, the statement added — the economy is expected to grow by around 7 per cent, Planning Commission deputy chairman Montek Singh Ahluwalia told reporters.