Indian government unveils $4bn econmic stimulus plan
After failing to check the downslide in the economy with several montetary policies and interest rate cut Indian governement has now announced for the first time an economic stimulus package.
The Indian government has been taking slew of econmic measures to counter the effects of the global slowdown. After world economy has hit by economic crisis India's central bank the Reserve Bank of India has injected $60.2bn into the financial system to boost liquidity.
India corporates welcomed the mega stimulus package announced by the government, saying the duty cuts and other sectoral incentives would help generate demand through lowering of prices for consumers and overseas markets.
Indian stock market opened sharply higher on Monday after RBI slashed its key interest rates and the government announced a fiscal stimulus package, in an effort to revive fading economic growth.
The move came as the Reserve Bank of India cut its key interest rate by one percentage point, from 7.5% to 6.5%, on Saturday to encourage spending.
It is the third time since October the central bank has cut rates, which are now at their lowest since June 2006.
As well as the global financial situation, business confidence in India has also fallen in the wake of the Mumbai attacks that left at least 170 dead.
Prime Minister Manmohan Singh's office said in a statement: "The government has decided to seek authorisation for additional planned expenditure of up to 200bn rupees ($4bn) in the current year."
The prime minister's office said the government was keeping a close watch on the economic situation and would take any additional needed to "maintain the pace of economic activity".
Under the plan, various categories of value-added tax will be cut by up to 4 percentage points to encourage consumer spending.
The package also includes measures to boost infrastructure spending, help businesses, and aid labour-intensive export sectors such as textiles and handicrafts.
Mr Singh, who recently took control of the finance ministry, last week forecast that India's economy would grow by 7.5% in the year to March 2009.
However, economists say growth could be as low as 6.8% this financial year, and 5.5% the following year.
Business leaders had hoped the government would do more.
Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry, said the package was pointing in the right direction, but "could have done even more" to help boost growth.
India's rising budget deficit means it can do far less than a country like China - which last month announced a $586bn stimulus package - to spend its way out of economic problems.