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Govt to unveil 2nd stimulus package soon

By BS Reporters in New Delhi
December 24, 2008 10:41 IST
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The government is expected to announce the second stimulus package in the next three days.

With the government announcing an across-the-board cut in excise duty by 4 percentage points and other expenditure being planned, Virmani said the fiscal stimulus package would increase fiscal deficit by 2 per cent of GDP, adding that the combined number would be around 5 per cent.

The government had earlier said the reduction in the tax rate and other fiscal sops would cost the exchequer Rs 40,000 crore (Rs 400 billion) in the current fiscal.

The central government is readying a second round of fiscal package that is expected to be announced soon. However, details were not disclosed. Mainly, export-dependent sectors like textiles are demanding increased sops from the government, while those industries that are affected by surging imports are seeking additional duty on imports.

The government is expected to announce the much-awaited second stimulus package in the next two-three days. "We held discussions yesterday. We held discussions today . . . we are looking at it hopefully. We should do it in next two-three days," said Commerce and Industry Minister Kamal Nath.

The finance ministry on Monday said there was scope for further easing the monetary policy over the next 6-12 months to offset the adverse effect of the global economic depression impacting the domestic manufacturing sector.

Further, the ministry expects the Indian economy to grow between 7 and 8 per cent in the current fiscal (2008-09).

 "Given the global crisis, there should be much greater emphasis on growth and output," said Arvind Virmani, chief economic adviser to the finance ministry.

India's central bank has reduced key interest rates like repo rate (the rate at which it lends to commercial banks) by 2.5 percentage points to 6.5 per cent in the last two months. Demand for further rate cuts has come after the inflation rate dropped below 7 per cent for the first time in eight months on the back of falling commodity prices.

In a mid-year review of the Indian economy in 2008-09, the government said, "A proactive monetary policy may be necessary if the global economic depression continues to adversely affect manufacturing".

Economy to grow 7-8%

The mid-term review, which is an annual exercise undertaken by the finance ministry, expects the Indian economy to grow between 7 and 8 per cent, adding, "We have to be prepared, however, for growth to be around 7 per cent in 2008-09 as a whole".

The economy grew 7.8 per cent in the first half of the current fiscal. Thus, if the growth rate for the entire 12 months is predicted at 7 per cent, the growth rate for the second half will slow significantly to 6.2 per cent.

The mid-year review has kept a higher growth expectation of 8 per cent based on the investment rate achieved in the first half of the current fiscal. The rate increased about 1 per cent to 39.6 per cent over the first half of 2007-08.

"This means that the investment rate for the fiscal 2008-09 may not be very different from that in 2007-08," the report added.

However, Suresh Tendulkar, chairman of Prime Minister's Economic Advisory Council, said the gross domestic product (GDP) -- the sum of goods and services produced -- growth might slip below 7 per cent.

"If this psychology of gloom and doom becomes a self-fulfilling process, GDP growth can slip below 7 per cent, but there is no objective reason why it should. Even after this slowdown, the Indian economy will remain most possibly the second fastest growing economy in the world. What we are experiencing in India is not a recession as in advanced industrialised economies," he told reporters on the sidelines of a seminar in Mumbai.

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BS Reporters in New Delhi
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