The panic stricken govt has announced the second economic booster package to revive the falling economy. It was a sort of mini budget minus all the tax implications. The Govt recognized that the first economic stimulus package announced was not just enough, the Govt has unveiled the second one just 2 days back. The measures taken are summarized below:

1. The govt along with RBI has slashed the 3 key policy rates. RBI has cut CRR or cash
reserve ratio ( the percentage of total deposit a bank has to park with RBI) by 50 basis
points to 5%. The cut in CRR would infuse Rs 20,000 crores into the system. The RBI has already freed some 3 lakh crores by these measures in the last 2 months.

2. RBI has decided to reduce the repo rate (the rate at which banks can borrow from RBI) by 100 basis points to 5.5% which is eight and half years low. The impact of this is that the banks may again go for loan and deposit rate cuts just because it can now borrow money from RBI at cheaper rates. So getting loans will become easier in coming days. Indirectly more and more liquidity is infused into the system to solve the credit crisis present in the system.

3. RBI will cut reverse repo rate ( the interest rate banks get when they park money with
RBI) by 100 basis points to 4%. So now the banks will be forced to lend money to continue the business as RBI pays less and less interest after this measure. So again it will infuse some liquidity into the system.

Meanwhile Montek Singh has said “No single set of measures can insulate economy from global downturn”. RBI has cut the key rates barely a month back on Dec 8th. But somehow this package also seems not to be very enough because the RBI is just releasing the liquidity which it sucked from the markets previously. Just because the inflation has come down to below 7% levels in the last few weeks, RBI can freely take rate cut decisions. The results season will kick start very soon now and then we can see how the Indian companies have fared in the Q3 of 2009 fiscal year. There is a cautious optimism in the air all the time. So what do you think? Will this so called economic booster be enough to revive the economy and pull us back from the global crisis?

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