Faced with the prospects of job losses in lakhs, factory closures in thousands and a sharp slowdown in growth next year, India has finally decided to announce a mega economic stimulus package on Saturday that could add up to $10 billion or Rs 50,000 crore. Besides, to make funds available to corporate India at much lower interest rates, the Reserve Bank of India is also set to substantially ease its monetary stance by effecting a sharp 100-150 basis points cut in the signal repo rate (the interest rate at which the Reserve Bank of India lends to banks) which is 7.5 per cent now and at least a 50-basis points cut in reverse repo rate (the interest paid by the RBI to suck excess liquidity from banks) that stands at 6 per cent.

According to government officials, the package will likely include an extra Rs 15,000 crore budgetary allocation for infrastructure spending, a special Rs 15,000 crore funding window for real estate companies, a Rs 10,000 crore to Rs 15,000 crore line of credit for non-banking financial companies where credit has dried up, Rs 2,000 crore worth fiscal sops for exports, excise duty cuts for commercial vehicles, interest rate subsidy for housing loans, special terms of credit for automobile companies and a further relaxation in the norms for external commercial borrowings.

In addition to all this, the government is separately working on a special fund for the infrastructure sectors which could be as big as Rs 50,000 crore or $10 billion. This package will not be announced on Saturday as it’s still in the works. “The RBI, National Housing Bank and Sidbi will contribute to the corpus of this fund. The finance ministry is preparing the proposal,” an official said. Efforts are also simultaneously on to expedite the draw-down of $3 billion the World Bank has promised this year. A portion of it will go to institutions such as IIFCL and Power Finance Corp. Another chunk will go to PSU banks as Tier-2 capital to help them leverage it for infrastructure funding.

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