2008 Fiscal stimulus package of Rs 20000 Cr

Indian Govt declared a fiscal stimulus for the economy on 7Th DEC 2008. This contains

* incentives for textiles, and infrastructure
* 4% duty cut
* No export duty on iron ore fine and 2% on other.

The complete package is around 20K Cr (33K Cr including lending rate cuts and petrol price cut). This is just some basis points of budget. The main question for this package is will this be able to increase the citizen spending and will create a demand which will help the economy not to slow down or in way it can be said will this increase the economic activity in country.

When we go into the current meltdown felt by textiles is loss of couple of 100k job in this industry only in kerala. This clearly indicate some thing must be done in order to retain the textile job by giving some incentives but just decrease in lending rate and extension of lending period will these peanuts help textile industry to survive.

Coming to infra, India is the place where it never witnessed a meltdown in reality price and even the realty companies are reluctant to realise this fact that the correction in reality as just started and not in a position to cut cost. they keep on build inventories instead to of clearing inventories to some extent but there are sitting in a hope that there will be a lending rate cut which can help them to get moving with the increase in the sales and want to enjoy high returns for time being. They must realise that the situation and must be proactive in dealing with the downturn. If the inventories get accumulated in the same way then there will be a sharp downturn and will lead to a sharp correction for which no reality and infra company is prepared to face it and may not survive the massive downturn. The reality companies are asking for more interest rate cuts, which i believe will lead to a drastic situation where the default on home loans growth and in this present trend the credit card default is growing at a fast rate and home loan default will be an added asset to accelerate meltdown. There is an increase of price by more than 300% in reality it must at least correct by 40% now or near future.

4% duty cut on some capital goods will help to increase demand for only short term but after that the again a drop in demand and price must get corrected. For example the sharp decline of automotive sale in past month is due to lack of demand and people are not ready to spend for comfort than saving money for must needed goods in this uncertain times. This is the similar case similar to infra where people use loans to buy Porsche cars just as a status symbol instead of going for a affordable car with no or less debt. There is an increase in careless spending which will diminish in this current slump but the ultimate winners after the slump will be the people who are spend in there limits.

Coming to reduction in iron ore export duty will increase the export of the iron or instead there must must be a import tax on processed iron and incentives must be given to utilise the iron here itself and encourage the export of processed iron which will create an opportunity to process iron ore locally and some jobs will be created.

But the real real economic is slowing down due to global melt down. will India sustain the meltdown and come out untouched by the grime outlook?

What I personally feel is that the real estate bubble has not yet busted, its just a start of insecurity feeling for the individuals is driving the current market scenario.