India Unveils Second Stimulus Package

January 5, 2009 Posted by Reading Time: < 1 minute

Jan. 5 – India announced a second stimulus package to further boost an ailing economy that is growing at its slowest pace since six years. The Indian government announced a one percent cut in policy interest rates (repurchase rate and reverse repurchase rate) to 5.50 percent and 4 percent and also decided to cut the cash reserve ratio by half a percentage point to 5 percent. The move is expected to free up Rs 200 billion (US$4.16 billion) in the banking system.

In addition to rate cuts, the stimulus package the second within a month, included steps to ease overseas borrowing norms for various vital sectors such as infrastructure, finance and real estate companies. According to the Wall Street Journal, the government increased the foreign-investment limit in rupee corporate bonds to US$15 billion from US$6 billion and removed the ceiling on the interest rates companies can pay for their overseas borrowings until June 30.

Previously, companies could pay only up to three percentage points above the London inter bank offered rate for loans of up to five years and five percentage points above Libor for loans of longer maturity.

The package also allows state administrations to borrow up to Rs 300 billion (uS$6.2 billion for development and infrastructure projects.

Montek Singh Aluwalia, National Planning Commissioner who also announced the second stimulus package said there would be no immediate results.

"The latest assessment we have is that we should be willing to see growth rates decline in the coming year and an average growth rate of seven percent would be quite a good performance," he told the AFP.