Second stimulus package in three days: Kamal Nath news
24 December 2008

The government is expected to come out with a second stimulus package for the slowing Indian economy within the next three days, commerce and industry minister Kamal Nath said.

Kamal Nath, commerce and industry ministerThe second stimulus package comes in the wake of a 0.4 per cent fall in industrial growth in the country in October – the first time in 15 years -  and a 12.1 per cent fall in the country's exports during the month.

"We are looking at it hopefully. We should do it in next two-three days,"  Kamal Nath said after a meeting of the group of ministers.

The new package is expected to benefit exports, housing and steel, some of the sectors most affected by the financial market meltdown.

The package will be finalised at a late evening meeting to be attended by Nath himself, deputy chairman of the planning commission Montek Singh Ahluwalia and cabinet secretary K M Chandrashekhar.

The government is expected to come out with a Rs350-crore additional package for exporters. Exporters who have purchased export credit protection are likely to get an extra cover over and above what they have already bought.

The Reserve Bank of India had earlier announced a Rs5,000-crore refinance package for Exim Bank to provide liquidity support to troubled exporters.

The fresh funds will provide export credit insurance cover to exporters over and above the protection provided by Export Credit Guarantee Corporation.

While the details of the package are still being worked out, the non-SME sectors such as textiles, gems and jewellery and leather are expected to benefit from the package.

Early this month, the government announced its first stimulus package,  which included a 4 per cent across-the-board excise duty reduction and additional government spending to the tune of Rs20,000 crore.

In addition, the Reserve Bank also eased liquidity through reduction in some key rates, thereby releasing about Rs300,000 crore of into the system.

The government, meanwhile, sought an additional Rs147,000 crore in extra budgetary expenditure as a counter cyclical measure to push economic growth.

The government has also sought a uniform reduction in lending and borrowing rates by banks after a series of rate cuts by the RBI and lowering of lending rates by some major banks.

"There is a case for deposit rates coming down, and lending rates coming down further. I think there is a case for the prime lending rate coming down even more," home minister and former finance minister P Chidambaram said during a function at the National Institution of Public Finance and Policy (NIPFP).

He said the government has urged monetary authorities to act swiftly and cut rates, and set policy rates at a lower level.

"For some reason banks have become completely risk-averse. We have to prod them, nudge them, in fact in stronger words to get moving. I think they have begun to move but not quite enough," he said.


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Second stimulus package in three days: Kamal Nath