Finally, India gets its fiscal stimulus package
US got it. China got. Now India gets it. India has announced its fiscal stimulus package. A single number cannot be put together for the package but at a high level an additional 20,000 crores will be spent from the budget. Government will have Rs. 300,000 crores for the next 4 months.
The series of very fortunate events in the past 3 days are very interesting. They also augur well for the Indian economy at least for the next 2 quarters. RBI has cut the lending rates by 1%. Following that, Petrol and diesel prices were reduced by 5 rupees and 2 rupees respectively. This is followed by a fat stimulus package.
The package will benefit all the sectors – especially textile, housing and real estate sectors. Most significant of the package is the CENVAT rate cut of 4%. This is cut across the board except for petroleum products. This cut alone will bring a loss of 8700 crore to the government.
The effects of the package are already visible. ICICI Bank has reduced the home loan rates by 1.5% for the loans below 20 lakhs. Maruti Suzuki has reduced the car prices by 4%. Maruti’s work horse Alto will be cheaper by 8000 rupees. Tata Motors is expected to announce a similar cut. Shree Cements has announced a rate cut of 6 – 7 rupees per bag.
On a funny note, there is a clause that the government departments can replace their vehicles. That would mean the Skoda’s and CR-V’s will be replaced by Benz’s?
The package will increase the fiscal deficit and carry the deficit to 2009. Given the gloomy outlook, deficit should be fine as long as the economy grows.
What are your thoughts about the stimulus package?