Dec. 7 (Bloomberg) -- India's Prime Minister Manmohan Singh plans to spend an extra 200 billion rupees ($4 billion) to support an economy buffeted by recession and a terrorist attack, following interest-rate cuts announced yesterday.

The government will spend a total of 3 trillion rupees, of which 7 percent is designated as new spending, in the remaining four months of the financial year, it said in a release today.

``The incremental spending is less than what was originally thought,'' said Sonal Varma, a Mumbai-based economist at Nomura International Plc. ``Any fiscal stimulus will help alleviate the stress in the economy, but a slowdown is inevitable.''

Governments around the world are spending to revive growth. China unveiled a 4 trillion yuan ($582 billion) package in November and President-elect Barack Obama plans to make the ``single largest new investment'' in roads, bridges and public buildings since the 1950s to lift the sagging U.S. economy.

The Indian government plans to allocate the money by March. The Reserve Bank of India yesterday cut interest rates for the third time in less than two months. The program comes after Mumbai, India's financial capital, came under attack from terrorists last month and as a global credit crisis cuts off access by Indian companies to international funds.

The details of the extra spending were clarified by Montek Singh Ahluwalia, deputy chairman of the Planning Commission, at a briefing in New Delhi today. The measures will need parliamentary and other approvals, Ahluwalia said.

The Economic Times reported on Dec. 4 that India may unveil a 750 billion-rupee plan to boost growth by the end of this week, without saying where it got the information.

Value of Package

``I think putting one number to this package would not be the right thing to do,'' Ahluwalia said, when asked about the size of the stimulus plan. ``This is a multidimensional package. This is a package that consists of some additional public expenditure, some incentives to channelize bank financing and others which are reductions in excise duty.''

India will forego about 87 billion rupees in revenue because of the 4 percent cut in central valued added tax announced today, Finance Secretary Arun Ramanathan said.

Maruti Suzuki India Ltd., the nation's biggest carmaker, will pass on the reduction to customers, Chairman R.C. Bhargava said in televised comments.

Recession Impact

India, where domestic consumption makes up 60 percent of the GDP, is facing the impact of the global recession because its integration with the world economy has been rising.

Merchandise exports plus imports, as a proportion of GDP, grew to 34.7 percent in the year ended March 31 from 21.2 percent in 1997-98, the year of the Asian crisis, according to the central bank.

The country's ratio of gross current account and gross capital flows to GDP has increased 117.0 percent from 46.8 percent during the period, the central bank said.

Forty percent of Indian industry's funding in the year ended March 31, when India grew at 9 percent, came from overseas borrowings and the sale of new shares in the stock market, said Tehmina Khan, international economist at Capital Economics Ltd. in London.

``The moderation in growth will be more than anticipated,'' Governor Duvvuri Subbarao said yesterday while announcing the rate cuts. He said the 7.5 percent growth forecast for the current year will be revised in the next monetary policy statement scheduled on Jan. 27.

Growth Slowdown

Capital Economics' Khan expects India's $1.2 trillion economy to grow 5 percent in 2009, less than the 6.3 percent forecast by the International Monetary Fund.

``India must give its economy as much boost as it can at this point,'' said Sherman Chan, an economist with Moody's Economy.com in Sydney. ``No country, including India, can escape the impact of the global recession.''

India's exports fell 12.1 percent in October, its first drop in seven years. Exports this fiscal may be $175 billion- $180 billion versus the $200 billion target, Commerce Secretary G.K. Pillai said in televised comments today.

The country's economic woes have been compounded by the terrorist attack on luxury hotels, a café and other places in its financial capital of Mumbai on Nov. 26, killing 163 people.

That's shaken investor confidence in Asia's third-largest economy, prompting companies including Merck KGaA, Daiichi Sankyo Co., GlaxoSmithKline Plc and Sanofi-Aventis SA to halt business trips to India.

Services such as hotels and travel will be hurt after the attacks, said Deepak N. Lalwani, director for India at Astaire & Partners Ltd., a London-based stock broking company.

The government estimates that 200,000 to 300,000 temporary or casual workers may have lost their jobs in the economic slowdown, Pillai said.

India Infrastructure Finance Co. will raise 100 billion rupees through the sale of tax-free bonds by March 31, 2009, to help with the funding of projects, the government said.

To contact the reporter on this story: Cherian Thomas in New Delhi at Cthomas1@bloomberg.net.

Last Updated: December 7, 2008 09:33 EST