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India announces third stimulus package

Feb 26, 2009

India on Tuesday provided 2% cut in excise duty and service tax to give boost to the country’s economy. Starting December last year, this is the third stimulus package announced by the government to counter the crisis faced due to the global economic downturn.

New Delhi: The Centre on Tuesday pushed through a third stimulus package by way of a 2% cut in excise duty and service tax.

Industry chambers welcomed the move. “It is another stimulus,” acting Union Finance Minister Pranab Mukherjee told reporters after the passage of the Interim Budget in the Lok Sabha.

The tax concessions would entail a revenue sacrifice of about Rs 30,000 crore, Mukherjee said. “It will have its desired impact because we have given some concessions to the export sector, particularly those which are employment -generating ones, like gems and jewellery, garments and handicraft.”

Mukherjee said the full impact of the global recession was yet to unfold.

“With the strong export linkages India has with these economies it is unlikely India will not feel the impact. With the constitutional constraints, I have some flexibility which I want to use to provide a further stimulus to the economy,” Mukherjee said.

The announcement includes 4% across-the-board excise duty cut to be continued beyond March 31, 2009, an additional 2% cut in excise duty, 2% cut in service tax, excise duty on bulk cement to be 8% or Rs 230 per metric tonne, whichever is higher.

Naptha has been exempted from customs duty to provide relief to the power sector.

“The general relaxation in the excise duty rates by 4% was made with effect from December 7, 2008 and it is now being extended beyond March 31, 2009.

In addition, it has now been decided to reduce the general rate of central excise duty from 10% to 8%” Mukherjee said.

These duty reductions are likely to cost the treasury nearly Rs 30,000 crore. This is above the 4% cut in CENVAT announced in December 2008, which has now been extended to beyond March 31.

The government expects the Indian economy to grow at 7.1% in the current financial year ending March 31, the slowest pace in six years.

So far, government has announced two stimulus packages, one on December 7, 2008 and the other on January 2, 2009 besides the several monetary policy measures undertaken by the Reserve Bank of India.

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