Finance ministry moves to boost spending, loosens purse strings

The FM said additional liquidity support of  ₹20,000 crore will be provided to housing finance companies by the National Housing Bank, taking the total amount to  ₹30,000 crore. (HT )

NEW DELHI : To boost demand in a sagging Indian economy without breaching the fiscal deficit target, finance minister Nirmala Sitharaman announced several steps, including front-loading of growth capital to public sector banks, additional capital to housing finance companies (HFCs) and lifting the ban on purchase of new vehicles by government departments.

In a hurriedly-called press conference, Sitharaman flanked by her departmental secretaries, said her budget announcement of providing recapitalization bonds of 70,000 crore to public sector banks will be front-loaded, which will allow banks to lend up to 5 trillion, benefitting retail borrowers, small traders and companies.

To encourage more credit support for purchasing houses, vehicles and consumption goods, Sitharaman said additional liquidity support of 20,000 crore will be provided to housing finance companies by the National Housing Bank, taking the total amount to 30,000 crore.

Sitharaman said the ban on the purchase of new vehicles by government departments will be lifted.

Sitharaman also announced a slew of measures to bring relief to the automobile sector, which is facing the worst slump in passenger vehicle sales in nearly two decades due to higher ownership costs, and liquidity crunch.

Sitharaman said this is only the start and she will announce more reforms measures over the next week.

“We are alive to challenges and will continue to respond to them in real-time basis, not in a knee jerk manner, but in a well thought through and carefully nuanced manner,” she added.

The minister had held meetings with industry representatives across sectors, including banking, automobile, foreign portfolio investors, micro, small and medium enterprises, industry associations and real estate developers last month to understand the sectoral problems.

“People look at stimulus in some form of doles or money given away. The entire reform thrust of today by finance minister has been structural, not responding to any cyclical requirement. She has tried to correct the broken pipe between the banks to housing finance companies, non-banking financial companies (NBFCs) and other asset classes on one side, and the interest rate cut, which allows the liquidity to flow. The problem has been the velocity of money so that more transactions start happening, money flows, and consumption takes place,” economic affairs secretary Atanu Chakraborty said.

Aditi Nayar, principal economist, Icra Ratings, said the measures should help address some of the constraints to growth, by boosting sentiment, addressing liquidity issues in some sectors, improving ease of doing business, as well as aiding monetary transmission.

“Funds allocated in the budget may be spent faster as well. Based on the pace at which implementation of these announcements takes place, we could expect a modest boost to growth in the second half of 2019-20,” she added.