The worsening economic conditions in world market forced various governments to come out with bail-out packages which were aimed at reviving falling companies and country’s economy. These bail-out packages were designed to help financial organizations and fundamentals of economy.
USA was the first country to come out with $ 700 Billion bail-out package for American economy. This was followed by another package. Several European countries also unveiled packages for controlling the worsening situations.
India did not lag behind in launching stimulus package aimed in controlling situations in housing industry, infrastructure, exports oriented units and to boost demand. The second stimulus package was announced in the year 2009. The main highlights of first fiscal package were reduced Cenvat on various products excluding non-petroleum products from 14 percent to 12 percent, 8 percent and 4 percent in separate categories. For the benefit of power sector customs duty was fully exempted on naphtha.
While realizing the importance of looking after small and medium level enterprises, government increased the credit guarantee scheme to double of previous amount. Banks were also encouraged to provide loans by increasing lock-in period. RBI also chipped in by reducing CRR, Repo rate and Reverse Repo rate substantially. This step will ease the flow of liquidity into the system. Banks will also have more cash to provide for loans under housing schemes.
The second stimulus package went one step further of the first one. This package was aimed at reviving the most affected sectors. For that purpose, central government has considerably relaxed norms for overseas borrowing. Government has also allowed IIFCL to issue tax free bonds for the purpose of investing in core infrastructure projects.
India’s development is very much dependent on infrastructure growth so that part has been well taken care of by providing for additional infrastructure spending of 75,000 crore in next 18 months. Along with fiscal measures, several rate cuts were also announced by RBI under monetary measures. These steps are expected to infuse substantial amount of liquidity in the system. These stimulus packages are definitely a step in the right direction, the effect of which will be visible in coming times.