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India unveils $4 billion economic stimulus package

The government said it would also ensure a substantial increase in expenditure for next year's budget.

The new measures follow a cut in interest ratesas been undermined further by attacks in the financial capital Mumbai that killed 163 people, including more than two dozen foreigners.

"The government has decided to seek authorisation for additional planned expenditure of up to 200 billion rupees (four billion dollars) in the current (financial) year," Prime Minister Manmohan Singh's office said in a statement.

"The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity."

Under the package, the government said that various categories of value-added tax would be cut by up to four percent to increase spending.

To boost exports, the government announced extra allocation of 70 million dollars for a host of incentive schemes.

The package also includes measures to boost infrastructure spending, small and medium businesses, and labour-intensive export sectors such as textiles and handicrafts.

On Saturday, the Reserve Bank of India reduced its repo rate -- the rate at which it lends to commercial banks -- to 6.5 percent, and its reverse repo rate --- the rate at which it borrows overnight -- to 5.0 percent.

Singh, who recently took control of the finance ministry, last week forecast growth of 7.5 percent for the year to March 2009.

Economists say growth could be as low as 6.8 percent this year and 5.5 percent the following year.