In a televised address to the nation on Tuesday, May 13, 2020, Indian Prime Minister (PM) Narendra Modi announced that the government has injected 20 trillion rupees ($266 billion) in fiscal and monetary measures to support the failing economy. India, prior to the pandemic outbreak, was facing a crawling economy with lower GDP rate and it was further escalated due to weeks-long national lockdown prompted by the coronavirus outbreak.
Modi’s Economic Rescue Package
Recently, Modi government was under pressure after a video-conferencing meeting with many Chief Ministers of states who were demanding to lift the months-long virus lockdown amid the rising numbers of the new virus-infected cases. Till Tuesday, India reported more than 70,000 cases of the virus infection and is expected to exceed China, the country where the virus has originated in December last year, within a week.
In his address to the nation, Modi announced a $266 billion economic rescue package, which was equivalent to 10% of India’s gross domestic product (GDP), with an aim at boosting country’s economic activities affected by the prolonged lockdown. In March, the government had allotted around 1.7 trillion rupees ($2.6 billion) in direct cash transfers and food security measures to mainly help the poor, but was widely criticized for doing little.
Modi, without explaining the details of his new package, stated, “The package will also focus on land, labor, liquidity and laws. It will cater to various sections including cottage industry, medium and small enterprises, laborers, middle class, and industries among others.”
Increase Borrowing Rate and New Budget
While Modi stated the detail information for the new budget would be published in a week’s time, economists said the new package included the March allocation as well as liquidity measures announced by the central bank would be worth $6.5 trillion rupees.
Referring to the new economic budget, Sandip Sabharwal, a Mumbai-based fund manager, reflected, “Headline announcement looks positive. Would include around 6.5 trillion rupees already done by RBI (Reserve Bank of India) and the first package. So – additional is 13.5 trillion rupees.”
However, he claimed, “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.” It was reported last week that India increased its borrowing programmes for the year to 12 trillion rupees from 7.8 trillion to fund some of its expenses.
Modi said in the address, “These reforms will promote business, attract investment, and further strengthen ‘Made in India’.” Meanwhile, Madhavi Arora, lead economist at Edelweiss FX and Rates, observed, “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.” Arora added, “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.”
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