RBI governor meets PM; stimulus package soon

Prime Minister Manmohan Singh today held consultations with Reserve Bank of India Governor D Subbarao amid expectations that the government would shortly announce its second stimulus package to prop up the economy hit by the global slowdown.

Finance Secretary Arun Ramanathan and Rajya Sabha member and former governor of RBI C Rangarajan were also present during the meeting.

The central bank is likely to complement the fiscal package by announcing further cuts in its key interest rates like repo (the rate at which it lends to banks) and reverse repo (the rate at which it borrows) by up to one percentage point to further bring down interest rates. Other monetary measures could include refinance support to banks to lend to infrastructure projects held up due to non-availability of long-term finance.

Singh, who also holds the charge of the finance ministry, is understood to have discussed specific proposals in the package that are expected to be announced in a few days, sources said.

Meanwhile, Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters that stimulus package would be announced within a few days, adding the strategy was to prepare a plan that could be implemented even during the next fiscal.

The government is likely announce further fiscal incentives for labour-intensive sectors like textiles. A proposal to give a higher tax exemption on home loans is also being considered. Currently, up to Rs 1.5 lakh rebate is annually given for interest and principal payment towards home loans availed by taxpayers.

The government has already announced a 4 per cent cut in excise duty across-the-board and raised the public expenditure by Rs 20,000 crore in the first stimulus package announced early this month to counter the impact of the global meltdown.

The Reserve Bank on its part had injected around Rs 3 lakh crore liquidity into the system through a series of cuts in key policy rates and other measures in the last two months. Taking cues from the RBI, several banks have lowered their lending rates.

Reeling under the global slowdown, India’s industrial growth declined 0.4 per cent in October for the first time in 15 years.

The government is worried over the impact of slowdown in job market.