Industry welcomes second stimulus package

Industry has welcomed the second stimulus package unveiled by the government yesterday (See: Second stimulus aims at boosting spending, investment) 

Dilip Chenoy, director general, Society of Indian Automobile Manufacturers, welcomed the positive steps announced by the government and RBI. He feels that this is a welcome move particularly since some of the issues of the automotive sector have been specifically addressed.

The measures announced could ensure that ultimately liquidity reaches customers at reasonable costs. This is important to address the passenger car and two-wheeler segments.
 
Chenoy said that ''The specific steps announced for the commercial vehicle sector could address the issues faced by this segment. Specific line of finance, and the incentive to purchase vehicles before March 2009 would have a positive effect. The funding of the purchase of buses under JNNURM would help increase capacity utilization and improve public transportation across cities.'' 

The restoration of DEPB rates would also assist exports, while the willingness of the government to look at further measures at a later date is also being interpreted as a positive signal.

Ravi Kant, managing director, Tata Motors  has also expressed his satisfaction with the stimulus package.

He said, ''we welcome the positive steps announced in the fiscal package today. The government needs to work on ensuring that ultimately liquidity reaches customers at reasonable costs. Although some steps declared today would help commercial vehicles, the government needs to take many more measures to substantially stoke demand as that has gone in a reverse gear. We will continue to expect more positive measures forthcoming from the government.''

Amongst the industry bodies CII has appreciated the additional liquidity the package will bring into the economy but has also hoped for additional measures as suggested by them.

The fiscal stimulus package announced by the government also includes several measures aimed at addressing some of the problems being faced by the economy.

CII had highlighted the lack of access to credit, the slowdown in exports and domestic demand as well as the accumulation in inventories as the key sources of stress in the economy.

The stimulus package has increased access to external borrowing by removing the interest rate ceiling on ECBs, allowing 'development of integrated townships' as an end-use for ECBs and allowing NBFCs dealing exclusively with infrastructure financing to raise ECBs. This will reduce the financing constraints faced by non-bank infrastructure finance companies. Liquidity support has also been provided to NBFCs to ease their financing constraints.

"We welcome the steps taken to reduce interest rates and increase availability of credit. Greater access to external borrowings, special liquidity measures for NBFCs and increase in FII investment limit in corporate bonds are positive measures" said K V Kamath, president, CII.

Significant benefit could  flow to the economy from the additional funding option provided to IIFCL. If indeed infrastructure projects worth Rs100,000 crore are implemented over the next 18 months, as envisaged in the package, this will provide a significant stimulus to the economy. However, the government must focus on implementation.

The enhancement of the credit guarantee coverage for very small credit facilities is a welcome measure. There is however a large section of SMEs that face difficulty in managing liquidity given the elongation of the working capital cycle, and in accessing credit facilities.