New Delhi

Second stimulus package for economy coming

NEW DELHI: The government is working on a second stimulus package for the current fiscal and another for 2009-10 aimed at spurring growth in the wake of the slowdown owing to the global financial crisis. The package for this fiscal, which is likely to be announced in the next few days, may include further cuts in key policy rates by the Reserve Bank of India (RBI).

“We are trying to coordinate a number of different steps. And I hope in the next few days we will be ready to make an announcement [about the second stimulus package],” Planning Commission Deputy Chairman Montek Singh Ahluwalia told newspersons here on Monday.

Mr. Ahluwalia argued that with the slowdown in economic growth and the rate of inflation nearly halving to 6.61 per cent from its peak level of 12.91 per cent in August, there was enough cushion for the RBI to cut its rates further.

“It is clear at the moment that the economy is growing below its potential and inflation is definitely on its way down. And these factors would suggest that there is a scope [for easing monetary policy]…We should be watching the situation carefully and we should not hesitate to take further steps. These matters are being discussed...our prospects for inflation justify taking a stronger monetary position,” he said.

Hints of another rate cut were also evident from the fact that RBI Governor D. Subbarao had a meeting with Prime Minister Manmohan Singh at his residence on Monday. While a number of banks have already announced lower lending and deposit rates with effect from January 1, 2009, a further softening in interest rates seem to be in the offing.

Mr. Ahluwalia pointed out that there were suggestions and demands from different people (chambers and industry segments) and that they were referred to Cabinet Secretary K.M. Chandrasekhar. “I am hoping that we will get something. I can assure you that the main thing is to make sure that the expenditure we have already provided for and the new expenditure, gets done. In the Planning Commission, we are not proposing any new expenditure for the current year,” he said.

In its efforts to minimise the impact of the global downturn, the government had announced a stimulus package which, among other sops, included a four per cent across-the-board cut in excise duty and hike in public expenditure in infrastructure projects. Alongside, it also sought to increase public expenditure by Rs. 1.47 lakh crore through two supplementary demands for grants, which would be over and above the Rs. 7.5 lakh crore already provided for in the Budget for 2008-09.

Pointing to the need for a stimulus package for the next fiscal also, Mr. Ahluwalia noted that the global economic situation was going to be worse in 2009 and, therefore, the government’s objective was to prepare a suitable fiscal strategy for both this year and the next.

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