Ashok Handoo | 08 Jan, 2009With the advent of 2009, economists are debating the extent of the impact of global meltdown on the Indian economy in 2009. The predictions range between somewhat optimistic to fairly pessimistic. But the common thread running is that 2009 will be challenging, indeed.
The Deputy Chairman of the Planning Commission Montek Singh Ahluwalia says the stimulus package part two is part of the government strategy to deal with the situation as it evolves.
The fiscal and monetary measures taken under the second package are targeted to increase liquidity for pushing up demand, addressing the concerns of the industries and provide incentives to exporters that have been hit by the recessionary conditions.
The first objective is aimed to be met by reducing the key interest rates further the CRR has been cut by point 5 percent, bringing it down to 5%. The repo and the reverse repo rates have been reduced by1% each, bringing them down to 5.5 % and 4% respectively. All this will leave more funds with the banks to enable them to lend more at lower rates of interest.
The second objective will be met by curbing cheap imports. That explains why certain duties on import of cement, Zinc and ferro-alloys, TMT bars etc. which were removed earlier to fight inflation, have been restored.
The third objective to boost exports is hoped to be met by a twin stroke-increasing duty drawbacks, which the exporters claim against the taxes paid on inputs needed to manufacture the item for export and extend the duration of the scheme up to the end of December this year.
The government is able to do this because the inflation rate is consistently falling for the last one and a half month. As Ashok Chawla Economic Affair's Secretary in the Finance Ministry observes "the trend is clear. This will translate into lower interest rates." There is a possibility of inflation rate coming down...