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India unveils 4 billion dollar stimulus plan

Latest update : 2008-12-08

The Indian government has unveiled a 4 billion dollar stimulus package to help the country weather the financial crisis. The plan includes a cut in VAT and boost in government spending, and comes just after a fresh cut in interest rates.

AFP - India on Sunday announced an extra 4 billion dollars in spending to help shield the country's economy from the impact of the global financial crisis.

The government said it would also ensure a substantial increase in expenditure for next year's budget, without giving a specific figure.

The new measures follow a cut in interest rates by India's central bank on Saturday to stimulate the economy, which has been hit by the global recession.

Confidence has been undermined further by attacks in the financial capital Mumbai that killed 163 people, including more than two dozen foreigners.

"The government has decided to seek authorisation for additional planned expenditure of up to 200 billion rupees (four billion dollars) in the current (financial) year," Prime Minister Manmohan Singh's office said in a statement.

"The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity."

Under the package, the government said that various categories of value-added tax would be cut by four percent to increase spending.

To boost exports, the government announced extra allocation of 70 million dollars for a host of incentive schemes.

Exports fell by 12 percent in October and the government has cut its export target for the year to 175 billion dollars from 200 billion.

The stimulus package also includes measures to boost infrastructure spending, small and medium businesses, and labour-intensive export sectors such as textiles and handicrafts.

The additional expenditure will further expand India's fiscal deficit, which widened 60 percent to 73 billion dollars between April and October from the same period a year earlier.

"The fiscal deficit will be worse. We don't have a number on what that it will be," Montek Singh Ahluwalia, deputy chairman of the government's planning commission told reporters after the announcement.

On Saturday, the Reserve Bank of India reduced its repo rate -- the rate at which it lends to commercial banks -- to 6.5 percent, and its reverse repo rate --- the rate at which it borrows overnight -- to 5.0 percent.

Singh, who recently took control of the finance ministry, last week forecast growth of 7.5 percent for the year to March 2009.

Economists say growth could be as low as 6.8 percent this year and 5.5 percent the following year.

The government said it was concerned about the impact of the global meltdown on its economy.

Amit Mitra, secretary general of industry body FICCI, welcomed the announcement, saying: "It should help in imparting some momentum to the economy to overcome the current slowdown."

But he added that the government should focus more on exports in the next package.

Date created : 2008-12-08