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HERE'S some good news for serving and retired civil servants. The government has increased dearness allowance (DA) for government employees and dearness relief (DR) for pensioners by 5% with effect from July 1. This will put additional purchasing power of Rs 2,903.55 crore in the hands of civil servants, up to February-end, after which another instalment of DA will kick in. This is also music to the ears of marketers gearing up for an action-packed festive season, and would increase consumption in the economy.

The Union Cabinet’s decision to increase DA to 27% is in accordance with the accepted formula under the Sixth Pay Commission recommendations, an official release said. The Cabinet also cleared a one percentage point interest subvention for home loans up to Rs 10 lakh.

According to ratings agency risil’s principal economist, DK Joshi, the additional DA and the interest rate subvention announced on housing loans will add incrementally to the ongoing economic recovery.

While an increase in DA to 27% will cost the exchequer Rs 4,355 crore in a full year and Rs 2,903.55 crore in the financial year(for eight months from July 2009 to February 2010), it will give that much more spending power in the hands of over eight million central government employees and pensioners and boost the economy, threatened by an erratic monsoon. The additional DA will also help them weather the impact of rising prices. Consumer price inflation is currently in double digits.

The 1% interest subvention on home loans of up to Rs 10 lakh for houses costing up to Rs 20 lakh will not just stimulate demand in the construction sector but also give a relief of up to Rs 10,000 to borrowers.

Cut in crop loan sop

"THE 1% subvention would be for the first 12 EMIs (equated monthly instalments) on the loans,” information and broadcasting minister Ambika Soni told reporters in the Capital after a Cabinet meeting. The government said the interest rate subsidy scheme was in line with the announcement by finance minister Pranab Mukherjee during a debate on the budget for 2009-10 in July. The first twelve instalments of all loans sanctioned and disbursed during the twelve months from the date of publication of the scheme will be eligible for interest subvention. The scheme will be implemented through scheduled commercial banks and housing finance companies registered with the National Housing Bank.

While the government has provided 1% subsidy on home loans, it slashed the interest subsidy given to farmers on crop loans by one percentage point to 2% for this fiscal, a move expected to bring down burden on the central exchequer by Rs 311 crore. The government will now pay 2% interest subsidy to banks, as against 3% in the last fiscal, for granting short-term crop loan to farmers at a concessional rate of 7%, Ms Soni said.

The financial implication of the interest subsidy on farm loans will come down to Rs 4,000 crore this fiscal compared to Rs 4,311 crore in 2008-09, Ms Soni added. However, in a move to incentivise repayment of farm loans on time, farmers who have been repaying their credit promptly would continue to get 3% subvention and loans at interest rate of 6%.

The government also revised upwards the target for loan disbursements to the agriculture sector to Rs 3, 25,000 crore for the current fiscal from Rs 2, 80,000 crore a year ago, of which Rs 2, 00,000 crore is estimated for crop loans.

The cabinet approved restructuring of Bird Group of Companies, having small steel plants, to public sector units under the ministry of steel. The companies will be allowed to become subsidiaries-cum-holding companies of Rashtriya Ispat Nigam Ltd.

It gave its nod to the Rs 330-crore grant for setting up six National Institutes of Pharmaceutical Education and Research (NIPER) at Ahmedabad, Hyderabad, Hajipur (Bihar), Kolkata, Rae Bareli (UP) and Guwahati, each. The grant is over and above 100 acres of land provided by the respective state governments. The Cabinet also allocated Rs 1,473 crore to the Cotton Corporation of India for losses incurred due to procurement of cotton at the minimum support price from the farmers.

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