Home loan sops, DA to bring cheer

NEW DELHI: Here’s 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 in the hands of civil servants to the tune of Rs 2,903.55 crore, up to end-February, after which another instalment of DA would kick in. This comes as good news for 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 one percentage point interest subvention for home loans up to Rs 10 lakh.

According to DK Joshi ,principal economist at ratings agency CRISIL, the additional DA and the interest rate subvention announced on the 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 2903.55 crore in the financial year( for a period of 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. “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 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 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 that is expected to bring down burden on the central exchequer by Rs 311 crore.