India Unveils 3 Trillion Rupee Spending Plan By March (Update2)
By Cherian Thomas and Bibhudatta Pradhan
Dec. 7 (Bloomberg) -- Indian Prime Minister Manmohan Singh unveiled a 3 trillion rupee ($60 billion) spending plan, four times more than expected, to bolster an economy buffeted by recession and a terrorist attack.
The government plans to allocate the money, equivalent to 5 percent of gross domestic product, by March, it said in a release in New Delhi today. The Reserve Bank of India yesterday cut interest rates for the third time in less than two months.
``This is huge and it reflects the seriousness of the global economic crisis,'' said Sonal Varma, a Mumbai-based economist at Nomura International Plc in Mumbai.``This also shows there is nothing like decoupling in an integrated world - India is getting affected by both global trade and financial channels.''
The unprecedented spending comes after Mumbai, India's financial capital, came under attack from terrorists last month and as a global credit crisis cuts off access by Indian companies to international funds.
Governments around the world are spending to revive growth. China unveiled a 4 trillion yuan ($582 billion) package in November and President-elect Barack Obama plans to make the ``single largest new investment'' in roads, bridges and public buildings since the 1950s to lift the sagging U.S. economy.
India, where domestic consumption makes up 60 percent of the GDP, is facing the impact of the global recession because its integration with the world economy has been rising.
Exports, Imports
Merchandise exports plus imports, as a proportion of GDP, grew to 34.7 per cent in the year ended March 31 from 21.2 per cent in 1997-98, the year of the Asian crisis, according to the central bank.
The country's ratio of gross current account and gross capital flows to GDP has increased 117.0 per cent from 46.8 per cent during the period, the central bank said.
Forty percent of Indian industry's funding in the year ended March 31, when India grew at 9 percent, came from overseas borrowings and the sale of new shares in the stock market, said Tehmina Khan, international economist at Capital Economics Ltd. in London.
``The moderation in growth will be more than anticipated,'' Governor Duvvuri Subbarao said yesterday while announcing the rate cuts. He said the 7.5 percent growth forecast for the current year will be revised in the next monetary policy statement scheduled on Jan. 27.
Growth Expectation
Capital Economics' Khan expects India's $1.2 trillion economy to grow 5 percent in 2009, less than the 6.3 percent forecast by the International Monetary Fund.
``India must give its economy as much boost as it can at this point,'' said Sherman Chan, an economist with Moody's Economy.com in Sydney. ``No country, including India, can escape the impact of the global recession.''
India's exports fell 12.1 percent in October, its first drop in seven years. Exports this fiscal may be $175 billion- $180 billion versus the $200 billion target, Commerce Secretary G.K. Pillai said in televised comments today.
The country's economic woes have been compounded by the terrorist attack on luxury hotels, a café and other places in its financial capital of Mumbai on Nov. 26, killing 163 people.
That's shaken investor confidence in Asia's third-largest economy, prompting companies including Merck KGaA, Daiichi Sankyo Co., GlaxoSmithKline Plc and Sanofi-Aventis SA to halt business trips to India.
Services such as hotels and travel will be hurt after the attacks, said Deepak N. Lalwani, director for India at Astaire & Partners Ltd., a London-based stock broking company.
India estimates that 200,000 to 300,000 temporary or casual workers may have lost their jobs in the economic slowdown, Pillai said.
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