Stimulus package in the works: Focus may be on affordable housing

The government could use the affordable housing route to help the economy out of the blues and generate jobs. Social sector schemes could also be revised to boost demand and rev up the slowing economic growth, sources said. 

A stimulus package seems to be in the works but the specifics are being kept under wraps. At a press conference after the Cabinet meeting on Wednesday, Finance Minister Arun Jaitley did not disclose the measures being discussed to lift the economy. He only said some necessary measures would be announced after discussions with Prime Minister Narendra Modi, Cabinet colleagues, officials and experts. He also held a meeting with his colleagues and senior government officials on Tuesday to take stock of the situation.

Already, commerce and industry ministry has demanded a package for exports and manufacturing. Commerce and Industry Minister Suresh Prabhu in a series of tweets said: “We are working in close collaboration with the finance ministry to address the issue of blockage of working capital, speeding up refunds of taxes paid by exporters.” However, there are signals on the contrary from some parts in the government, suggesting that offering a fiscal stimulus may be at the cost of fiscal deficit target of the Centre. 

A stimulus package could prod the Reserve Bank of India to cut the policy rate and intervene to depreciate the rupee. 

Though the government is under attack on inflation, particularly petrol prices, Jaitley said 3.26 per cent inflation for the month of August was within the range of statutory limits. 

Indicating that the government would not cut excise duties on petrol, he asked parties protesting against petrol prices to cut VAT in states ruled by them.

Sources told Business Standard that the government was not particularly worried about the headline GDP growth number, which slowed to 5.7 per cent in the first quarter of FY18. This was the lowest growth under Modi. Rather, job creation was an urgent priority for the government, they said.

Declining growth had not created a panic situation as it was largely due to de-stocking of products ahead of the roll-out of the good and services tax (GST) in July, another source said. "We are looking at all indicators on economy. August figures for the GST would give us some idea about the way the economy is moving," he said. 

The index of industrial production (IIP) grew just 1.2 per cent in July after contracting 0.17 per cent in the previous month.

To focus on affordable housing, an idea which is being actively considered is to free up large land parcels held by public sector undertakings (PSU). This could act as a stimulus for the real estate sector as land acquisition is a major challenge. PSU lands are mostly in prime city localities and if developed in a proper manner, could lead to a boost to the sector.

In that direction, the Cabinet on Wednesday decided to merge 17 government-owned presses into five units. This would free up 468 acres of land which will go to the land and development office of the urban development ministry. 

Another step that may be looked at is tweaking of social sector schemes such as Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Pradhan Mantri Gram Sadak Yojana (PMGSY) to generate temporary or semi-permanent jobs in the hinterland and also in semi-urban areas. However, this might take time, as tweaking laws would require Parliament approval. However, the Ordinance route could be considered for faster execution.

At the conference, the FM said vegetable prices do rise in the monsoon, which cause inflation to go up. "In the month of spike in inflation, 3.26 per cent inflation is quite limited as per Indian standards," he said.

"How much VAT is reduced by states ruled by parties protesting against petrol prices?" he asked. "What we get from excise duty, 42 per cent goes to states. Let the states ruled by the Congress and CPI (M) say that they do not need their part of devolution and VAT," Jaitley said. He added international crude prices also went up due to hurricanes in the US affecting refining capacity. Now, these would come down, he said.