Tue, Dec 09, 2008 - Page 11 News List

India seeks to help small businesses and exporters

TAKING ACTION The government said a state-run financing firm would be allowed to issue US$2 billion in tax-free bonds to finance infrastructure projects


To boost India’s slowing economy, the government plans to spend an additional US$4 billion, cut the value-added tax and take steps to help exporters, small businesses and textile manufacturers.

The Indian Prime Minister’s Office also said on Sunday that a state-run financing firm would be allowed to issue US$2 billion in tax-free bonds to finance infrastructure projects.

“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,” the office said in a statement.

Sunday’s announcement came after the central bank on Saturday slashed key interest rates by a full percentage point. The benchmark repo rate, at which the central bank makes short-term loans to commercial banks, was lowered from 7.5 percent to 6.5 percent — the lowest since June 2006 and down from an October high of 9 percent.

The reverse repurchase rate, the rate at which it borrows from commercial banks, was cut from 6 percent to 5 percent to encourage banks to lend more to consumers.

India’s economic growth skidded to 7.6 percent last quarter from 9.3 percent in the third quarter of 2007 last year and exports shrank in October for the first time in seven years.

With a ballooning fiscal deficit, India can do far less than a country like China — which last month announced a US$586 billion stimulus package — to spend its way out of an economic slump.

Citibank said in a report on Thursday that it expected India’s deficit this fiscal year to swell from 6 percent to 8.6 percent of GDP — far higher than the government’s target.

The government said on Sunday that spending for the remaining four months of the fiscal year would total US$60.2 billion.

The government has announced plans to float US$9 billion in bonds, which some said could crowd out other borrowers from an already lean market.

Some business leaders had hoped the government would do even more.

“The fiscal package is pointing in the right direction, but could have done even more ... to increase the growth trajectory,” Federation of Indian Chambers of Commerce and Industry secretary general Amit Mitra said in a statement on Sunday.

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