Fiscal Stimulus Packages in Indian and Global Context

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MacroEconomic

FISCAL STIMULUS PACKAGES IN INDIAN and GLOBAL CONTEXT

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Table of Contents

1.Introduction4

2.Key Questions (we intend to answer)5

3.Genesis of Global Financial Crisis6

3.1Components of the Crisis7

3.2Parallels between Financial Crisis and The Great Depression8

4.Rationale behind Stimulus Packages11

4.1What is a Fiscal Stimulus?11

4.2Fallacies associated with Stimulus Packages13

5.Stimulus Package in Indian Context15

5.1Impact of Financial Crisis on India15

5.1.1Initial Impact of the Sub-prime Crisis15

5.1.2Why the Indian Financial Sector has weathered the Storm?16

5.1.3Questions to be addressed17

5.2. Fiscal Stimulus Packages in India22

5.2.1Stimulus Package 123

5.2.2Stimulus Package 225

5.2.3Stimulus Package 328

5.2.4Appropriateness of the Fiscal Stimulus measures28

5.2.5Fiscal Stimulus’s impact on India’ Agro Sector30

6.Stimulus Packages Globally32

6.1Announced Fiscal Stimulus Packages Globally32

6.2Content of global stimulus packages: the need for redistribution33

6.3In United States of America34

6.4In European Countries39

6.5In China41

7.Concluding Remarks44

8.Appendix46

8.1Appendix – 1 (Federal Fund rates in US, Monetary Policy Rates, Current account balances – Globally - as % of GDP)46

8.2Appendix – 2 (Share of banking assets held by foreign banks with majority ownership, 2006)..47

8.3Appendix – 3 (India’s 3 Fiscal Stimulus Plans – In Nutshell)48

8.4Appendix – 4 [Fiscal Stimulus Plans as % of GDP (Q4 2008 – Q1 2009)]48

8.5Appendix – 5 (Announced Stimulus Plans (Q4 2008 – Q1 2009)49

9.Bibliography50

Introduction

• The focus of this project is “Fiscal Stimulus” packages adopted by governments world over and their evaluation.

• We will start by stating few issues in the form of key questions that we intend to address via this project.

• Since “Global Financial Crisis” is the “Raison d'être” for all such stimulus packages, we will begin our discussion with the same. We will analyze, in very brief, what was the crisis and what were its impacts, and most importantly how come it necessitated the government intervention in the form of Fiscal Stimulus packages to bail out the ailing sectors of the world economy.

• That will be followed up by a detailed analysis on the theoretical rationale of Fiscal Stimulus Packages.

• After that we will analyze the Fiscal Stimulus packages in Indian Context and a critical evaluation of the same.

• Then we will briefly look at similar stimulus packages from across the globe. We will focus on US, Europe and China.

• The project shall conclude with the summary of analysis.

• Appendix and Bibliography are duly accommodated at the end of the text.

Key Questions (we intend to answer)

As a part of this project, we intend to answer following questions:

1) “With 60 per cent of India's population directly engaged in agriculture, and another 200 million landless workers indirectly banking on farming, the real stimulus to the economy can come only if the focus shifts to agriculture.” (Source: Devinder Sharma (2008): “A stimulus package for farmers?”, Published on India Together Web portal http://www.indiatogether.org/2008/dec/dsh-stimulus.htm) (Date: Dec 21, 2008) Evaluate this statement critically by discussing in brief the focus areas of three stimulus packages in India and the lack of focus on agriculture and food sector.

2) “The current financial crisis is an economic slowdown and not 'Great Depression’”. Examine this statement in light of the Fiscal Stimulus packages adopted by governments globally.

Genesis of Global Financial Crisis

• The proximate cause of the current financial turbulence is attributed to the...
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