Like a gunslinger with no spare bullets in his belt, India finds itself short of ammunition to fight its deepening economic downturn.A massive stimulus package like those planned by the United States and China is out of the question. India already has a chronic fiscal deficit. New Delhi puts it at 2.5 per cent of gross domestic product for this fiscal year. It is almost certainly much higher.

Government spending is rising at 20 per cent a year. Ramping up spending much more would draw the attention of credit-rating agencies, which are already raising alarms about India’s profligacy. The roughly $4-billion (U.S.) in new stimulative spending announced earlier this month has further stretched New Delhi’s fiscal limits. That figure pales beside the $700-billion announced last month by China, which has the advantage of being solidly in the black.

Interest rate cuts are another form of ammunition for governments trying to revive economic growth. India faces limits there, too. Partly because of high government spending, India still has an inflation problem, making it dangerous to lower rates too fast or too far. The central bank has lowered rates three times since October. The latest cut was a whopping one percentage point, but the bank may be running out of room.

Source:http://www.theglobeandmail.com/servlet/story/LAC.20081217.IBASIA17/TPStory/Business