Fiscal stimulus, rate cuts to spur Indian economy

Govt brings out mini budget to lift sagging economy in last chance ahead of elections, Gaurav Choudhury reports. See graphics

The government and the Reserve Bank of India on Friday announced a raft of measures to revive the economy, by seeking to make loans cheaper for homes and industry, boosting infrastructure spending and offering tax break to some troubled businesses.

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The package was announced less than a month after a similar set of stimuli.

“We should expect, from all the global projections, that the next year is going to be a very difficult year for the global economy,” Planning Commission Deputy Chairman Montek Singh Ahluwalia said. “With this package what we are doing is minimising the pain.”

His comments came after the RBI cut the repo rate, which it charges on short term loans to banks, from 6.5 per cent to 5.5 per cent and slashed the cash reserve ratio — the share of deposits bank must park with RBI — from 5.5 per cent to 5 per cent.

“This is a further indication of softening of interest rates, and now with the inflation pressure easing, this was anticipated,” said MD Mallya, CMD, Bank of Baroda.