The recent Monetary and Fiscal measures announced to boost the economy

Monetary measures

RBI announced monetary measures on 6th Dec (Saturday). RBI cut the policy rates but it kept the Cash Reserve Ratio, External Commercial Borrowing norms and Statutory Liquidity Requirement unchanged. However it reiterated that it wants to keep call rate within the repo and reverse repo rate indicating that liquidity remains the key concern.

Fiscal Stimulus Package

The Govt of India on Sunday (7th Dec) announced Rs 30,700 cr fiscal stimulus package primarily comprising of additional spending and excise duty cuts to boost consumption and to minimize the impact of financial crisis and global slowdown on the Indian economy. The government has proposed to increase plan expenditure by Rs 20,000 cr (0.4% of GDP). The total fiscal deficit comes to 6.4% of GDP (without considering the state deficits). However, considering the current environment, higher fiscal deficit is tolerable as it is an appropriate “counter-cyclical” policy.