India unveils second economic stimulus plan
AFP - 37 minutes ago
NEW DELHI (AFP) - - India Friday eased foreign borrowing for real estate and certain other companies and allowed additional liquidity for non-banking financial firms to boost growth in Asia's third-largest economy.
The second economic stimulus package in less than a month came as India forecast growth of seven percent for the year to March 2009, but economists say it could be as low as 6.8 percent this year and 5.5 percent the following year.
The package also allowed state administrations to borrow up to 300 billion rupees (6.2 billion dollars) to meet additional expenditure and fund infrastructure projects.
In a bid to bring in more foreign capital, the government said it would liberalise rules on overseas borrowing by property firms and those dealing with infrastructure projects such as airports, power and highways.
The ceiling for foreign investments in corporate bonds would be raised from six billion dollars to 15 billion dollars, national planning official Montek Singh Aluwalia told a news conference.
But he warned against expecting any immediate economic turnaround.
"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 said.
India's industrial output shrank for the first time in 15 years by 0.4 percent in October, after expanding by 12.2 percent in the same month a year earlier.
India's central bank meanwhile slashed its two key short-term interest rates.
The Reserve Bank of India (RBI) reduced its repo rate -- the short term rate at which it lends to commercial banks -- by 100 basis points to 5.5 percent.
It also slashed the reverse repo rate --- the rate at which it borrows overnight -- to four percent.
It also unveiled a cut in the cash reserve ratio, the proportion of deposits domestic banks have to keep with the RBI, by 50 basis points to five percent from January 17.
"These measures will make the new year happier," Aluwalia said.
Experts said the easing of the rates was likely to inject around 4.1 billion dollars into the domestic banking system.
The rate cuts were the fourth by the bank in less than three months.
The industry reacted cautiously, with some trade lobbies warning the measures were not enough.
"Some serious concerns have been left unaddressed such as exports," Sunil Munjal of the Confederation of Indian Industries said.
Indian exports in October tumbled for the first time in three years, shrinking by 12 percent from the same month a year earlier to 12.8 billion dollars.
"The fiscal room is very limited, but within that limited room much can be done," Munjal said.
Indian exporters voiced disappointment at the package.
"We were expecting that it will come up with some sort of export development fund," the Federation of Indian Exporters' Organisation chief Ajay Sahai said.
The Federation of Indian Chambers of Commerce and Industry hailed the plan, but urged the government to bring in more fiscal reforms.
"The second stimulus package addresses a wide range of concerns and should hopefully give a big boost to the slowing economy," said Amit Mitra, head of the national trade lobby.
India's economy has been hit by the global recession and confidence has been undermined further by attacks in the financial capital Mumbai that left 172 people dead, including nine gunmen, in November last year.
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