India unveils economic boost plan

India's economic growth is expected to slow this year

Indian authorities have unveiled a fresh economic stimulus package, including another reduction in the country's main interest rate.

The Reserve Bank of India has cut its key lending rate by one percentage point to an eight-year low of 5.5%, its fourth reduction in as many months.

In addition, the government is to allow increased foreign investment in both Indian bonds and companies.

It is the country's second economic stimulus plan in less than a month.

'Good growth'

Under the latest package announced on Friday, the central bank has also cut the amount of funds that commercial lenders have to keep in reserve to 5% from 5.5%.

Once the [financial] crisis is behind us, and calm and confidence are restored in the global markets, economic activity in India will recover sharply

Reserve Bank of India

Meanwhile, state governments will be able to borrow up to $6bn (£4.1bn) to fund additional infrastructure projects.

"The measures that the government has taken will ensure that we still have good growth in the country," said Montek Sing Ahluwalia, deputy chairman of the government's Planning Commission.

However, he added that it was "impossible to insulate yourself completely from a major downturn in the world economy".

The Indian economy has enjoyed annual growth of 9% or more in the previous three financial years, but this is expected to slow to 7% in the fiscal year to March, and to 6% next year.

"Once the [financial] crisis is behind us, and calm and confidence are restored in the global markets, economic activity in India will recover sharply," said the central bank.

"But a period of painful adjustment is inevitable."