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Cabinet has approved to issue 5% additional Dearness Allowance from 1.7.2009 for Central Government Employees



Release of additional instalment of dearness allowance to Central Government employees and dearness relief to Pensioners, due from 1.7.2009

The Cabinet has decided to release an additional instalment of Dearness Allowance (DA) to Central government employees and Dearness Relief (DR) to pensioners w.e.f. 1.7.2009 representing an increase of 5% over the existing rate of 22% of the Basic Pay/Pension, to compensate for price rise.

The increase is in accordance with the accepted formula, which is based on the recommendations of the 6th Central Pay Commission. The combined impact on the exchequer on account of both dearness allowance and dearness relief would be of the order of Rs4355.35 crore in a full year and Rs.2903.55 crore in the financial year 2009-2010 (for a period of 8 months from July, 2009 to February, 2010).

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Expected DA (Dearness Allowance) for Central Government Employees from July 2009 is 27%

1% interest subvention on housing loans upto Rs.10 lakh



The Cabinet today approved the Scheme of 1% interest subvention on housing loans up to Rs.10 lakh and the allocation of a sum of Rs.1000 crore for the Scheme.

Point-wide Details

• Interest subvention of 1 percent will be made available on individual housing loans upto Rs.10 lakh for construction / purchase of a new house or extension of an existing house provided the cost of the construction/price of the new house/extension does not exceed Rs. 20 lakh.

• The Scheme will be implemented through Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) registered with the National Housing Bank (NHB).

• The first twelve instalments of all such loans sanctioned and disbursed during the period of twelve months from the date of publication of the scheme will be eligible for interest subvention.

Subsidy of one percent will be computed for 12 months on disbursed amount and adjusted upfront in the principal outstanding irrespective of whether the loan is on fixed or floating rate basis.

• Reserve Bank of India (RBI) will be designated the nodal agency for SCBs and National Housing Bank (NHB) will be designated the nodal agency for HFCs.

Background

There has been a notable deceleration in the sectoral flow of credit to the housing sector which is attributable to increase in the price of houses, slackening of income growth and a rise in interest rates for housing loans.

The Finance Minister in his reply to the debate on the Finance Bill in the Lok Sabha on 27th July, 2009 made the announcement that housing, particularly lower and middle income housing, deserved to be supported. In order to stimulate this segment of house owners, he proposed to provide support to borrowers by way of interest subvention of 1% on all housing loans up to Rs.10 lakh to individuals, provided the cost of the house does not exceed Rs.20 lakh.

Implementation Strategy and targets

All Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) will submit a monthly consolidated return to the Reserve Bank of India (RBI) and National Housing Bank (NHB) respectively, specifying interest subvention given.

The nodal agencies will put up a demand to the Government of India for release of subsidy amount and the Government of India in turn will sanction and release the subsidy amount based on demand received.

The number of beneficiaries covered under the scheme will depend, interalia, upon the size of the loan amount and the number of beneficiaries approaching the nodal agency for interest subvention. Being a demand driven scheme no specific targets for coverage of beneficiaries have been fixed.

Major Impact:

It is expected that cut in interest rates should reduce Equated Monthly Instalments (EMIs) of borrowers and create additional demand for housing. This in turn should stimulate demand in construction industry as well as industries such as steel & cement having employment potential and income multiplier effect.

Expenditure involved:

An amount of Rs.1000 crore will be allocated in the Budget for the year 2009-10 for implementation of the Scheme.

No. of beneficiaries:

On a housing loan of Rs.10 lakh, the 1% interest relief available wil amount to Rs.10,000/- per account. As such, the Scheme of a size of Rs.1000 crore is expected to cover 10 lakh beneficiaries in one year period.

States/Districts covered:

The scheme will cover all States & Union Territories of the country, including rural & urban areas.

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