Under the financial crisis in 2008, India has brought out the following monetary and fiscal policies to alleviate the crisis’ impact and influence on the Indian economy. (I) Monetary Policy
To reduce the impact of the financial crisis on India, India’s Central Bank has successively resorted to means such as cutting interest rate reduction, increasing credit support, loosening foreign credit restrictions and boosting financial support for real estate and export etc. to strengthen financial support for the real economy. The 1st initiative was to ease monetary policy and increase mobility. Starting from Oct. 2008, the Reserve Bank of India has lowered bank-lending rates fives times in succession on Oct. 20, 2008, Nov.1, 2008, Dec. 6, 2008, Jan.2, 2009 and Mar.4, 2009 respectively. On Oct.10, 2008, the Central Bank decided to lower the benchmark Lending rate from 9% to 8%, which was eventually lowered to 5% by Mar.4, 2009 following five times reduction in succession. Another initiative of the Central Bank was to reduce the cash reserve ratio to 7.5% twice on Oct. 6, 2008 and Oct. 10, 2008. The ratio was then lowered to 5.5% on Nov. 1 the same year. The 2nd was to strengthen financial support for various departments of the national economy. India’s Central Bank has successively increased 5.617 trillion rupees for non-bank financial institutions, housing finance companies, the export sector and other institutions. This move helped to greatly ease the liquidity crunch resulted from economic downtown and capital outflows. In addition, the Reserve Bank of China provided up to 40 billion rupees to the National Housing Bank in Oct. 2008, requiring public banks to launch a housing loan stimulus policy of 0.5-2 million rupees. Later in Nov the same year, the Bank canceled real estate lending restrictions and permitted loans from foreign institutions. India also relaxed its restrictions on overseas commercial loans and lifted corporate bond investment upper limit from 6 billion dollars to 15 billion dollars. An additional 220 billion rupees credit support was provided to export, 2 % lower than the benchmark-lending rate. On Nov. 1, 2008, banks were allowed to lend from the Central Bank loans less than 1 of the deposit and 400 billion rupees were injected into the banking system. On Nov. 16, banks’ trade credit financing would be doubled via prime rate to 220 billion rupees while the repayment period was extended to 9 months. Also, the policy support for mutual funds and non-bank financial institutions was extended to Mar. 2009. In Dec. 2008, the Central Bank began allowing enterprises to repurchase the outstanding convertible foreign currency bonds by rules and took advantage of the low-cost environment of foreign credit markets to clear high-interest debts. Later in Jan. 2, 2009, the Central bank made a decision to provide 250 billions rupee credit to non-bank financial companies via specific channels and allow all states to raise 300 billion rupees from the credit market. Via the injection of liquidity and loosening of monetary policies, the Reserve Bank of India’s stimulus policies fully met the liquidity needs of various industries in the national economy and eased the negative impact of the financial crisis on economic growth.
(II) Fiscal Policy
In addition to providing liquidity support via monetary policies, the Indian government also resorted to fiscal stimulus to increase financial spending, accelerate infrastructure construction, reduce taxes and increase export support. India's central government has successively introduced 3 sets of fiscal stimulus polices in Dec. 2008, Jan. 2009 and Mar. 2009. The first was launched on Dec. 7, 2008 with a program totaling 307 billion rupees. The entire amount of fiscal stimulus spending reached 1.8% of GDP, including additional 200 billion rupees expenditure in fiscal 2009. The central excise duty was reduced by a unified rate of 4% regardless of the type of goods except...
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