Prime Minister Narendra Modi said on Tuesday that the country would provide Rs 20 lakh crore ($266 billion) in fiscal and monetary measures to support an economy battered by a sweeping weeks-long lockdown to fight the novel coronavirus. India has more than 70,000 cases among its 1.3 billion population and is set to surpass China, the origin of the outbreak, within a week.
PM Modi said strict stay-at-home orders would be extended beyond May 17 with a new set of rules.
In an address to the nation, he said the package was equivalent to 10 per cent of the country’s gross domestic product, and was aimed at the multitudes out of work and the businesses reeling under the prolonged shutdown.
In March, the government said it was providing around Rs 1.7 lakh crore ($22.6 billion) in direct cash transfers and food security measures, mainly for the poor, but was widely accused of doing too little.
PM Modi said details of the new package, as well as reforms of land and labour markets, would be released within days: “The package will also focus on land, labour, liquidity and laws.”
It will cater to various sections including cottage industry, medium and small enterprises, labourers, middle class, industries, among others.
Economists said the new package included the March allocation as well as liquidity measures announced by the central bank worth Rs 6.5 lakh crore.
“Headline announcement looks positive… Would include around Rs 6.5 lakh crore already done by RBI (Reserve Bank of India) and the first package. So – additional is Rs 13.5 lakh crore,” said Sandip Sabharwal, a Mumbai-based fund manager.
“It doesn’t match the gross borrowing details of the government so we need to look at details. Headline number should, however, excite the markets near-term.”
Last week, the government increased its borrowing programme for the year to Rs 12 lakh crore from Rs 7.8 lakh crore to fund some of the expenses.
Economy Slowing, Spending Rising
Even before the pandemic, the economy’s growth was slowing and public finances were strained because of poor tax collection and higher spending.
Last month, ratings agency Fitch said India’s sovereign rating could come under pressure if its fiscal outlook deteriorates further as the government tries to tackle the coronavirus crisis.
Some commentators said it was too early to say how effective the package would prove to be.
“Very often, when the government has made these huge, very big announcements… the figures have often been fudged,” Yogendra Yadav, founder of the opposition party Swaraj India, told a television channel.
“What we have right now is a statement of intent. How can you quarrel with intent?”
PM Modi said the reforms of the land and labour markets were intended to make the country more competitive and a big player in global supply chains, some of which could shift away from China after the pandemic.
Business leaders say potential investors often choose Vietnam, Thailand or Bangladesh ahead of India because of the time required to buy land for factories, restrictive labour laws and higher borrowing costs.
“These reforms will promote business, attract investment, and further strengthen ‘Made in India’,” PM Modi said.
Governments and central banks around the world have unleashed unprecedented amounts of fiscal and monetary support for economies that are reeling from the pandemic.
“India’s response has so far been tepid compared to other key nations and thus the catch-up is welcome and is also the need of the hour,” said Madhavi Arora, lead economist at Edelweiss FX and Rates.
“It needs to be seen how much will be in the form of direct budgetary support to gauge the immediate fiscal hit and the consequent funding sources.”