India would release a coronavirus fund worth 20 trillion rupees or $266 billion to shore up its economy, according to Prime Minister Narendra Modi.
On Tuesday, the prime minister said that their fiscal and monetary measures aim to help the economic recover from weeks-long lockdown. The government implemented lockdowns to curb the spread of the coronavirus.
India reported over 70,000 cases among its 1.3 billion population. It can potentially surpass China, where the outbreak started, within a week.
Modi also announced the extension of the strict stay-at-home orders beyond May 17 with a new set of guidelines.
According to him, the stimulus package was equivalent to 10% of India’s gross domestic product. The fund will use to cushion the impact of joblessness in the country and the struggles of businesses due to prolonged shutdown.
The government of India said in March that it will issue 1.7 trillion rupees or $2.6 billion in direct cash transfers and food security programs for the poor. However, the government was accused of not doing enough for the country.
Modi told the public that they will announce more details about the new package in the coming days.
“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, industries, among others," Modi said.
Meanwhile, economists said the new package covers the March allocation as well as liquidity policies from the central bank worth $6.5 trillion rupees.
“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,” 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.”
India boosted its borrowing program for the year to 12 trillion rupees from 7.8 trillion to support several expenses.
Economic recovery in India
According to the ratings agency Fitch, India’s sovereign rating could experience pressure if its fiscal forecast further declines as the government grapples with the coronavirus crisis.
Some commentators said it was too early to determine the effectiveness of the package. “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?”
Moreover, Modi said the reforms of the land and labor markets could allow India to be more competitive and participate in global supply chains.
Meanwhile, business leaders say potential investors tend to pick Vietnam, Thailand or Bangladesh ahead of India because of the process and time involved in purchasing lands, tight labor laws, and steep borrowing costs.
“These reforms will promote business, attract investment, and further strengthen ‘Made in India’,” Modi said.
“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.”
