Byapaar.com – The Indian Business Blog

Day before yesterday, the caretaker Finance Minister of India Mr. Pranab Mukherjee (the Ministry usually lies with the Prime Minister Dr. Manmohan Singh who is recovering from By-pass surgery) announced another round of stimulus package to bring impetus into the economy. This is the third such initiative by the government in as many months. This time no fund is to be infused to help the market reeling under severe liquidity crunch but the latest effort is aimed at reducing production costs of goods so that demand increases and industry grows. For this purpose the government has reduced excise duties on several products by 2 percent to 8 percent from existing rate of 10 percent. This effectively means cheaper steel, cement and consumer durable goods. The automobile sector which had a booming last year but suffering from current economic meltdown will not benefit directly. But due to cheaper rates of raw materials and accessories it might get some indirect lift. Also the heavy vehicle sector which has excise rate of 20 percent will get direct benefit from the latest move.

But the highest gain will be reaped by the service sector as service tax too was slashed from present level of 12 percent to 10 percent. It will benefit all those industries engaged in service sectors like hospitality, BPO and telecom. Experts expect that mobile rate will come down due to reduction in service tax. This reduction in taxes will cost the government to the tune of Rs. 300 billion.

This third stimulus package was announced on a day global rating agency Standard & Poor downgraded India’s sovereign credit rating due to ever growing fiscal deficit that is likely to be around 11.2 percent of GDP (Rs. 3620 billion) during this fiscal ending 31st March. Being an election year, the government took many populist measures like hiking central government employees’ salaries, writing off agricultural debt, high crude prices for most part of the year and lastly but not the least – the economic stimulus packages. This down gradation will not harm the government as it seldom borrows from foreign (continue reading…)

Amidst global economic turmoil and financial crisis caused by US subprime lending crisis that caused havoc in markets around the world, Indian nationalized banks in consultation with the government have announced reduction of interest rates on home loans of up to Rs. 2 million that could lead to partial impetus in the realty sector. Just last week industrial production in India contracted for the first time in 14 years.

According to the new rates set by the banks, housing loans of up to half a million Rupees will now have interests of 8.5 percent and that of loans between half a million to two million will have interest rates of 9.25 percent. Presently, interest for home loans is 9.75 to 10.5 across various sectors in the banking industry.

This brings very good news for millions common people who can not afford to think of a house or flat beyond Rs. 2 million. Another additional feature of the new housing loan package is that interest rates will remain frozen for 5 years which means clients will not have to worry about increased equated monthly installments (EMIs) during this period. Also they will enjoy the benefit of rate cuts in between while banks will take the burden if rates rise. After five years, consumers could choose either fixed or fluctuating rates according to their choice. This makes debt management a lot easier for the common person.

Not only this, but banks have also reduced the margin requirements for loans. While previously, borrowers were required to pay between 20 to 25 percent of the total amount as margin money, it has been trimmed down to 10 percent for loans up to half a million and 15 percent for loans between half a million to 2 million.

According to bankers, this move will see around Rs. 150 to 200 billion being released over next few years and help the common men who constitute eighty percent of nationalized banks’ housing loan book. (continue reading…)