Business Today

Stimulus package II

Another stimulus from the government, which doesn’t seem enough.

     Print Edition: January 25, 2009

The indian economy is expected to grow at 5-6 per cent, even as most of its global counterparts are in a gloom and doom situation. However, this estimate may be in danger if one sees the intensity of deceleration in the domestic economy.

In an attempt to speed up the revival, Reserve Bank of India (RBI) and the government has intervened yet again. Will this be adequate? Ravi Kant, Managing Director, Tata Motors, says the government needs to ensure that liquidity ultimately reaches customers at reasonable costs.

“Although the steps would help commercial vehicles, the government needs to do more to substantially stoke demand,” says Kant. Chanda Kochhar, Joint MD, ICICI Bank, says: “These measures would accelerate the move to a lower interest rate regime.”

Yet, a section of bankers argue that lower interest rates alone are not enough to revive demand. “Despite the US Federal Rate being reduced to a low of 0.25 per cent, there are few signs of revival there,” points out a banker. “Commodity and food prices have been falling and it’s a good enough reason for another round of rate cuts in the next 3-6 months,” says Rajesh Mokashi, Executive Director at rating agency CARE. The government maintains it does not envisage any further measures in the current fiscal. Will events force it to change its mind?

. Repo and reverse repo rates cuts by one percentage point each to 6.5% & 4%. In Sept., the rates were 9% & 6%, respectively.

. Cash reserve ratio cut by half a percentage point to 5% generating Rs 20,000 crore. Adds to Rs 3,00,000 crore pumped into the economy since Oct. ’08.

. Plans to re-capitalise state-run banks by around Rs 20,000 crore over two years. This will aid willingness to lend.

Anand Adhikari

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