The government is considering a proposal to double the income tax exemption limit on housing loans to Rs 3 lakh (Rs 300,000) from the current level of Rs 1.5 lakh (Rs 150,000), according to government sources.

The proposal is being discussed by the committee of secretaries that was set up in the wake of the global financial crisis affecting the Indian economy. Industry lobby groups have been urging the government to raise the limit as it will reduce the cost of borrowing on home loans.

"The logic behind the proposal is to boost consumption to drive domestic demand," said a top government official. A rise in income tax exemption means higher disposable incomes.

Concerned over the negative growth in industrial output, the government may next week announce a second stimulus package to spur demand in housing, automobile, chemicals and other sectors and beat the downturn.

According to sources in the government, the package, the second in the month, will include safeguards for chemical, aluminium and tyre producers against cheaper imports.

This comes in the background of a surge in imports from China adversely impacting the domestic sector. Imports from China in 101 items increased to Rs 42,000 crore (Rs 420 billion) in the first eight months ended November 2008, compared with Rs 19,000 crore (Rs 190 billion) in corresponding period last year, according to commerce ministry records.

The government is also likely to ask real estate players to reciprocate by slashing residential property prices, say sources, adding this will be the last economic stimulus package.

On December 7, the government had virtually unveiled a mini-budget that included Rs 20,000 crore (Rs 200 billion) of additional spending on infrastructure and cut excise duty across-the-board. It also provided a package for banks aimed at making home loans cheaper.