The reserve Bank of India have cut key interest rates 1% from 7.5% to 6.5% on December sixth followed by the announcement of an extra $4 billion in government spending in an attempt to increase consumption in the current economic woes. Its been the third time since October of this year that the Reserve Bank of India has cut its rates and is at its lowest since June of 2006.
Business confidence in India has fallen due to the recent terrorist attack. Along side the stimulus package and lowered interests the government is also planning on giving tax cuts to further encourage spending in India. Due to the rising debt of India, India has a limited weapons to battle this economic down turn, prior to this package India has primary used monetary policies to battle the recession.
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India faces the same issues that many countries, including the United States are facing now as well. It is clear that the Federal Reserve Bank of India is targetting consumer spending as a way to combat economic slowdown, however, terrorism fits in its own category of economic stability. It would not be surprising to see the outcome of the stimulant to be less than predicted, however monetary policies are sometimes the only options in certain countries with limited resources.
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