In order to fight the ongoing economic slowdown the Government of India and the Reserve bank of India have announced monetary and fiscal stimulants. On Saturday the 6th December 2008, the RBI announced a string of monetary measures with an intention to enhance the credit to the commercial sector and thereby prop up the demand. The highlights of the RBI’s policy are as follows:

• Reduction of the repo rate under the LAF by 100 basis points from 7.5 per cent to 6.5 per cent and also the reverse repo rate also by 100 basis points from 6.0 per cent to 5.0 per cent, effective December 8, 2008.
• To provide refinance of an amount of Rs. 7,000 crore to the Small Industries Development Bank of India (SIDBI). This is in view of the need to enhance credit delivery to the employment- intensive micro and small enterprises (MSE). This refinance facility will be available up to March 31, 2010.
• Refinance facility for the National Housing Bank (NHB) to the extent of Rs 4, 000 crore.
• Permitting Authorized Dealers Category - I banks to consider applications for premature buyback of FCCBs from their customers, where the source of funds for the buyback is: i) foreign currency resources held in India (including funds held in EEFC accounts) or abroad and/or ii) fresh ECB raised in conformity with the current ECB norms, provided there is a minimum discount of 15 per cent on the book value of the FCCB. In addition, the Reserve Bank will consider applications for buyback of FCCBs out of rupee resources provided that: (i) there is a minimum discount of 25 per cent on the book value; (ii) the amount of the buyback is limited to US $ 50 million of the redemption value per company; and (iii) the resources for buyback are drawn out of internal accruals of the company as certified by the statutory auditor.
• Categorizing the loans granted by banks to Housing Finance Companies (HFCs) for on-lending to individuals for purchase/construction of dwelling units as priority sector, provided the housing loans granted by HFCs do not exceed Rs.20 lakh per dwelling unit per family. However, the eligibility under this measure will be restricted to five per cent of the individual bank’s total priority sector lending. This special dispensation will apply to loans granted by banks to HFCs up to March 31, 2010.
• Extending exceptional/ concessional treatment to the commercial real estate exposures which are restructured up to June 30, 2009.
• Limiting the interest rate on Post-shipment Rupee Export Credit up to 180 days will not exceed BPLR minus 2.5 percentage points.

The major fiscal stimulus measures announced by the Government on Sunday the 7th December 2008 include the following:

• Additional plan expenditure of Rs.20,000 crores targeted towards boosting demand and investment.
• Public sector banks to announce a separate package for home loans
• Across the board reduction of excise duties by 4%. The revised three-slab excise duty structure applicable to non-petroleum products will be 10%, 8% and 4%
• Export incentives to the tune of Rs.2,000 crores with special emphasis on textiles, handloom, gems and jewellery, leather, marine food and handicraft segments.
• Issue of tax-free bonds to the tune of Rs.10,000 crores by India Infrastructure Finance Company (IIFC) for the purpose of refinancing long-term loans in the areas of ports, highways and power.

Earlier the petrol and diesel prices were reduced by Rs.5 per liter and Rs.2 per liter respectively. In combination, all these measures are expected to provide necessary boost to the sagging economy and reign in the declining growth rate. If need arises the Government is ready to take further stimulus measures.