With inflation under reasonable control, the government announced on Friday a raft of fiscal measures to shore up depressed demand and potentially multiply incomes across the real economy through a chain reaction.
Accompanied by an easier interest rate regime set by the Reserve Bank of India, demand would fan purchases, while cheaper loans could help buyers revive economic activity.
Housing sector and infrastructure sectors have been singled out for special attention as these can raise demand for goods in sectors such as cement and steel and drive consumption growth through greater income and additional employment generation.
The India Infrastructure Finance Company has been allowed to access in tranches an additional Rs.30,000 crore by way of tax-free bonds that would assist in funding of projects worth Rs 75,000 crore.
“The second fiscal stimulus package announced today certainly demonstrates the government’s desire to focus on the infrastructure sector as an engine to repower the economy,” said Vinayak Chatterjee, Chairman, Feedback Ventures, an infrastructure consulting and project implementation firm.
After years of 9 per cent growth, the global financial meltdown has dampened the local mood, Planning Commission’s deputy chairperson Montek Singh Ahluwalia told reporters, adding one could expect a 7 per cent GDP growth rate in the current fiscal year.
Officials said no further package was expected in current fiscal year ending March 2008, but said adding capital to public sector banks would be required over the next two years to maintain the tempo. More capital strengthens bank balance-sheets and encourages more lending. “The measures required to provide an economic stimulus to the economy have to extend beyond the current financial year and banks would have to be recapitalised to the tune of Rs 20,000 crore over the next two years,” a finance ministry statement said.