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Covid-19 stimulus package to revive economy could be 2%-4% of GDP: Official
People familiar with the matter said that the stimulus would be announced shortly, but none of the officials HT spoke to could give an exact date.
Expectations for a relief and stimulus package for individuals and businesses rose after Prime Minister Narendra Modi reviewed on Thursday, in a meeting with finance minister Nirmala Sitharaman, the impact on the Indian economy of the coronavirus disease (Covid-19) and the ongoing national lockdown aimed at limiting its spread. HT learns that chief economic adviser Krishnamurthy Subramanian is putting together the package.
People familiar with the matter said that the stimulus would be announced shortly, but none of the officials HT spoke to could give an exact date.
The meeting between the PM and the finance minister comes against the backdrop of demands by industry bodies of a package anywhere between Rs 14 lakh crore and Rs 16 lakh crore to revive the economy. There’s been little economic activity since the lockdown was declared on March 25. There has been some easing of restrictions since, and more will be eased on April 20, especially for manufacturing facilities in economic enclaves and businesses focused on rural India, but the lockdown is to continue till May 3.
Two people familiar with the matter said on condition of anonymity that the package will cover the farm sector, micro, small and medium enterprises (MSMEs), and large businesses. There could also be something in it for individual taxpayers, said a third person, adding that the size of the package could be anything between 2% and 4% of the GDP. That will work out between Rs 5 lakh crore and Rs 7.5 lakh crore. None of the three wished to be identified.
It is almost ready, the third person said, but given that the situation is “dynamic”, bits are being added to it all the time. There is complete recognition of the need for “big relief”, this person added , a sort of “new deal”, a reference to the US plan to exit the Great Depression.
The first person said there will be complementary monetary measures by the Reserve Bank of India to help companies. Late last month, RBI infused an additional Rs 3.74 lakh crore of liquidity into the system and said it would do “whatever it takes” to handle the crisis.
Finance minister Nirmala Sitharaman announced a Rs 1.7 lakh crore package under the Prime Minister Garib Kalyan Yojana on March 26 that included food security and cash payments to the vulnerable sections of society. But there’s been no announcement of a larger package. “Government needs to announce a large fiscal package for affected industries and sectors which are at high and medium risk,” State Bank of India (SBI) said in its research report Ecowrap.
Experts say that economic activity in India will decline by at least 50% in the 40 days of the lockdown (till May 3) -- a loss of around $137 billion. With supply chains broken, even the lifting will not help things return to normal, they added. The International Monetary Fund has said India will grow by 1.9% in 2020 (calendar year), a number that looks positively cheerful when compared with Barclay’s assessment of 0% and Nomura’s that it will shrink by 0.5%.
According to Niranjan Hiranandani, president of the Associated Chambers of Commerce and Industry, companies want government to expeditiously clear its dues to them -- Rs 2.2 lakh crore is owed to fertiliser companies alone, he explained -- and temporarily cut GST on all products by half to boost demand.
The government is working towards clearing all vendor dues, two of the three people said.
The first official said RBI could lower policy rates by another 100 basis points to infuse liquidity and some moratorium from repayments for both personal and corporate loans. “There is a demand for further easing of monetary policy from stakeholders. Inflationary pressure is also lower. Theoretically, there is a possibility, but a decision on this matter will only be taken by the central bank,” he said. One basis point is a hundredth of a percentage point.
RBI last month advanced its Monetary Policy Committee (MPC) meeting to help the country’s financial system tide over the coronavirus disease pandemic and on March 27 sharply reduced the policy rate by 75 basis points to 4.4%.
One of the immediate issues is to provide relief to daily wagers, the first person said.
“But that is expected to be resolved to a large extent with agricultural and industrial activities (outside the municipal limits) will start from April 21. But, farmers will require faster procurement, and small industries that employee workers in large number would require financial support to restart their business. A fund can be created to support them.”
On April 9, HT reported that the government was considering creating a fund with a corpus between Rs 50,000 crore and Rs 75,000 crore to help small industries.
