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Major fiscal stimulus package on Saturday likely
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December 03, 2008 19:44 IST

The government is likely to announce on Saturday a series of measures to boost economic activity in the country.

According to official sources, the government is likely to announce a major fiscal stimulus package for housing, auto and export sectors on Saturday.

The government might also cut cut excise duty on commercial vehicles, and further relax the external commercial borrowing norms. This will help exporters and others.

There is also a possibility of the Reserve Bank of India [Get Quote] announcing another set of cuts in key policy rates like the cash-reserve ratio and the repo rate.

Meanwhile, to encourage banks to provide sufficient credit to farmers, the government has raised the interest assistance provided to public sector banks by one per cent for up to Rs 300,000 short-term crop loan to agriculturalists for this fiscal.

"We have now been informed by the Union Ministry of Finance that the government has approved interest subvention of 3 per cent, instead of 2 per cent, for the year 2008-09," the RBI said in a notification on Wednesday.

However, the banks, as earlier, will have to provide these loans to farmers at seven per cent per annum at the ground level.

The increased subvention will also be applicable to cooperative banks and regional rural banks.

This implies that farmers will get loans at 7 per cent rate of interest, but the banks will get 3 per cent interest from the government on the loans disbursed, so that excess of costs of funds are absorbed by the government.

There have been complaints that banks do not have sufficient liquidity to provide funds to farmers and there has been an increasing demand to raise the subvention.

Sources say that Prime Minister Manmohan Singh had formed a panel to deal with the economic slowdown.

The government is likely to provide cheap credit to labour-intensive export sectors including textiles, leather, handicrafts, marine products and gems and jewellery.

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