India on Sunday announced an extra 200bn rupees (Dh14.69bn) in spending to shield the country's economy from the impact of the global financial crisis. The government said it would also ensure a substantial increase in expenditure for next year's budget. The new measures follow a cut in interest rates by India's central bank yesterday to stimulate the economy, which has been hit by the global recession.
Confidence has been undermined further by attacks in the financial capital Mumbai that killed 163 people, including more than two dozen foreigners. "The government has decided to seek authorisation for additional planned expenditure of up to 200 billion rupees in the current (financial) year," prime minister Manmohan Singh's office said. "The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity."
Under the package, the government said that various categories of value-added tax would be cut by up to four per cent to increase spending. To boost exports, the government announced extra allocation of 3.5 trillion rupees for a host of incentive schemes. The package also includes measures to boost infrastructure spending, small and medium businesses, and labour-intensive export sectors such as textiles and handicrafts.
Yesterday, the Reserve Bank of India reduced its repo rate the rate at which it lends to commercial banks to 6.5 per cent, and its reverse repo rate - the rate at which it borrows overnight to 5.0 per cent. Mr Singh, who recently took control of the finance ministry, last week forecast growth of 7.5 per cent for the year to March 2009. Economists say growth could be as low as 6.8 per cent this year and 5.5 per cent the following year.