Jan. 2 (Bloomberg) -- India will announce its second stimulus package in a month today to counter the impact of a global recession on Asia's third-largest economy.

Planning Commission deputy head Montek Singh Ahluwalia will unveil measures at 6 p.m. in New Delhi, spokesman Umakant Mishra said, without providing details. The government cut excise duty and added 200 billion rupees ($4 billion) of spending for roads, ports and infrastructure last month.

Prime Minister Manmohan Singh, seeking re-election before May, wants to boost consumption as a decline in exports forces companies to reduce production and fire workers. The finance ministry said Dec. 23 the central bank may have to cut borrowing costs more aggressively if manufacturing slows further.

``The manufacturing sector continues to show falling output on the sharp downturn in foreign demand,'' said Gaurav Kapur, senior economist at ABN Amro Bank in Mumbai. ``The weaker financial and economic conditions worldwide negatively impacted both confidence and demand.''

Governments worldwide are announcing spending packages to boost growth amid a deepening global slump. China in November unveiled a 4 trillion-yuan ($586 billion) stimulus package to revive demand. Thailand Dec. 26 said it will spend 300 billion baht ($8.6 billion) to help an economy the government predicts may slip into a recession in the first quarter of this year.

Cut Jobs

India's government is working on more measures to help exporters and labor-intensive industries, Trade Minister Kamal Nath said Dec. 11, without elaborating.

Exporters have cut about 65,500 jobs as recessions in the U.S. and Europe, the nation's biggest markets, damped overseas demand. Industrial production fell 0.4 percent in October, the first decline in 15 years, and exports plunged 9.9 percent in November after falling for the first time in seven years the previous month.

Manufacturing contracted for the second consecutive month in December, according to a survey by ABN Amro. The Dutch bank's Purchasing Managers' Index declined to 44.4 compared with 45.8 in October, according to a report released today. A reading below 50 indicates factory output is declining.

Still, any additional spending plans are constrained by an increasing shortfall in government revenue as the economy slows.

Last month's stimulus package and other off-budget spending plans, including higher salaries for government workers, oil subsidies and farm-loan waivers, are likely to widen the fiscal deficit to ``at least 5 percent'' of gross domestic product in the current financial year, Arvind Virmani, the finance ministry's top economic adviser said Dec. 23.

The government had set a target of 2.5 percent for the budget deficit for the 12 months ended March 31.

Shares Rise

The benchmark Bombay Stock Exchange Sensitive Index rose 1.1 percent after the government announced the stimulus plan today. The Sensex, which dropped 52 percent last year, has risen 18 percent since reaching a three-year low on Nov. 20.

The rupee dropped 0.2 percent to 48.87 per dollar as of 1:51 p.m. and the 10-year bond yield rose 4 basis points to 5.34 percent. A basis point is 0.01 percentage point.

Measures to spur the economy began on Oct. 6 when Reserve Bank of India Governor Duvvuri Subbarao cut the amount of money lenders need to set aside with the central bank. On Oct. 20, he presided over the first rate reduction in four years. India's repurchase rate is 6.5 percent, down from 9 percent set in July.

There is ``considerable scope'' to reduce borrowing costs, the finance ministry said last week, after a drop in commodity prices cooled inflation from a 16-year-high of 12.91 percent in August.

Higher Spending

Higher public spending has accompanied efforts to slash borrowing costs globally. China cut interest rates for the fifth time in three months on Dec. 22 to support the world's fourth- biggest economy. The Bank of Japan reduced its benchmark rate to 0.1 percent on Dec. 19 and the U.S. Federal Reserve lowered its main rate to as low as zero on Dec. 16.

Weakening output and overseas sales will slow the pace of growth in India. South Asia's biggest economy may expand as little as 7 percent in the year to March 31, down from 9 percent or more in the previous three years, the government said Dec. 23. India's economy expanded 7.6 percent in the three months to Sept. 30 from a year earlier, the slowest pace since 2004.

``The downside risks to the growth outlook have increased significantly,'' said Rajeev Malik, an economist at Macquarie Group Ltd. in Singapore.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

Last Updated: January 2, 2009 03:48 EST