With India's prime minister, Dr Manmohan Singh back at the helm of the finance ministry, the government was quick to announce a fiscal stimulus package this Sunday that was aimed at increasing consumption and kick starting growth once again in the Indian economy. (See: Centre cuts excise by 4 per cent; unveils Rs30,700 crore stimulus) 

However, reports in both the national as well as the international media suggest that the spending plan and interest rate cuts unveiled to simulate the economy in a bid to outrun the global economic slowdown may be too little and two late, and would not be able to prevent the growth of the Indian economy from slowing to the weakest pace in six years.

The government has outlined a $4 billion (Rs30,700 crore) allocation,  as part of a total Rs100,000 crore spending plan for the remaining financial year that will close on 31 March 2009, while the Reserve Bank of India on cut rates for the third time since October, on 6 December. 

The incremental expenditure represents around 0.3 per cent of the country's gross domestic product (GDP), and gives away the government's plan to rely instead on monetary policy measures to stimulate growth. 

Reports quoted economists as saying that no matter what steps the government takes, its plans to avoid a slowdown in growth in 2009 are practically doomed, mainly because investment spending that has been the primary driver of growth in India has taken the biggest knock at the stock markets in the wake of the global credit crunch. They said around 40 per cent of funding for Indian industry came from overseas during the last fiscal year, pushing the growth rate to nine per cent. Most of that money found its way into new shares at the stock market.

Lower interest rates are intended for Indian companies to borrow from local banks, rather than seek funding from foreign sources that are themselves strapped for funds. 

By admission, while announcing the rate cuts, RBI's governor D Subbarao has said that in the year to 31 March, 2009, the moderation in growth will be more than anticipated, saying that the 7.5 per cent growth that had been forecast for the current year would be revised during the next monetary policy statement scheduled for 27 January 2009. 

Economists suggest that the total fiscal stimulus plan could be well worth anywhere between $7 billion and $9 billion, since the $4 billion of additional spending is allocated for infrastructure spending, and the government has remained silent on incremental spending in subsidies, salaries and other associated payouts.

Subbarao also said that lower borrowing costs need to be spurred on through complementing moves on the fiscal side, which would in turn drive consumer demand. However, the government's options are seriously limited there, with India's public debt being around 77 per cent of gross domestic product, against 22 per cent that of China's. China had recently come up with a $581 billion spending plan to boost its economy to over eight per cent for each of the coming two years. 

While domestic consumption makes up only 37 per cent of China's GDP, for India, the figure is more around 60 per cent. Economists say India can't escape the impact of the global recession, and must move to boost its economy in the immediate term.

India revised its key lending rate, the repo rate, downwards by one point to 6.5 per cent on Saturday, ahead of the fiscal package announced by the government on Sunday. The report rate is now at its lowest in two and a half years. The reverse repo rate too fell to five per cent from six per cent, its lowest in over three years.