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Prime Minister Narendra Modi announced a ~ 20 lakh crore economic package to help people and businesses deal with the Covid-19 pandemic and forced closure to combat its spread and, he says, turn the “crisis into a opportunity”.
The details of the package, which is equivalent to a little less than 10% of GDP, will be announced in the coming days, starting Wednesday, by Finance Minister Nirmala Sitharaman. The prime minister said the package – Atmanirbhar Bharat Abhiyan (Independent Indian Mission) – would cover “land, work, liquidity and laws”, industry and businesses of all sizes, and farmers, entrepreneurs and the middle class. And he repeatedly emphasized the issue of self-sufficiency and the importance of maintaining local manufacturing, markets, and supply chains.
“When India talks about self-sufficiency, she does not advocate an egocentric system. In India’s self-sufficiency, there is a concern for happiness, cooperation and peace around the world, “Modi said, adding that local suppliers have met India’s demands in this hour of crisis, and now “Indians have to be” vocal about the local “and buy products from them.”
The amount includes the ~ 1.7 lakh crore already announced, a cash transfer and food package targeting the most vulnerable, and the measures announced by the Reserve Bank of India (RBI). The central bank has announced a liquidity infusion and specific credit measures that add something between ~ 4.5 lakh crore. That means that the package to be announced in the next few days will total around ~ 14 lakh crore.
While the details of the package will emerge in the coming days, a series of reports in recent weeks have indicated the type of initiatives that can be launched: a large fund for micro, small and medium-sized enterprises (MSMEs); a bad bank well capitalized; a business loan guarantee scheme; incentives for local manufacturing; and direct cash transfers to the poor.
The ~ 20 lakh crore package meets demand from industrial agencies: the Confederation of Indian Industry (IIC) requested a ~ 15 lakh crore “immediate stimulus package” on May 9; the Federation of Chambers of Commerce and Industry of India (Ficci) requested ~ 10 lakh crore; and the PHD ~ 16 lakh crore Chamber of Commerce.
The package, as a share of GDP, also compares favorably with packages announced by other G20 nations. Japan is an outlier with a package estimated to be worth around 20% of its GDP, but the United States and Australia have announced packages estimated at about 10% of their respective GDP, and Canada 8.4%. China’s stimulus is estimated at around 2.5% of its GDP.
The stimulus comes in the context of predictions that the Indian economy will contract this year (securities firm Nomura believes it will shrink by almost 5.2%) and a record 16.7% decline in output from the factory in March, when less than 10 days were affected by the national blockade.
Modi said the virus, while ravaging the world, has also provided an opportunity to strengthen India’s resolve and not deviate from its goals. “We are at a crucial juncture. This crisis has a message for us. It has given us an opportunity … we have to protect ourselves and move on as well, “Modi said.
The prime minister’s mention of land, work and laws heralds significant reforms that could make it easier to do business. Madhya Pradesh and Uttar Pradesh have already suspended most labor laws (the first for existing and new factories and the second for new factories only) as part of an effort to boost the economy, attract investment and find jobs for dozens of millions of people. migrant workers who fled to their homes in some of the least developed and industrialized states in the country.
A boost in local manufacturing and industrial activity also fits well with Modi’s theme of a self-sufficient India. “The only way to go is to be self-sufficient,” he said. At least some of their meetings in the past month and a half have looked for ways to boost local manufacturing.
In the speech, the Prime Minister spoke of the five pillars of a self-sufficient India: an economy that does not grow progressively but makes quantum leaps; infrastructure development; a technology-driven system; a vibrant demographic mix; and better supply chains to stimulate demand.
The Union Cabinet is slated to approve the package on Wednesday morning.
Several economists welcomed the package as “substantial,” but said they would prefer to see the fine print and unbundled allocations to measure the full scope of the impact.
“It is welcome even though the government seems to hesitate initially. It has yielded to the demands of so many economists and industry alike. The only way forward is to review fiscal policy (ie loosen government spending) so that growth economic may reappear, ”said NR Bhanumurthy of the National Institute of Finance and Public Policy.
“Most important is the Prime Minister’s emphasis on self-sufficiency. This is a major shift in India’s economic policy, as we were previously looking at globalization. And if this self-sufficiency is driven by the MSM sector in India So we are looking to counter China with its own model. ~ 20 lakh crore is not a small amount, we need to know where the money will come from and what it will be like, it is redistributed, “said Abhirup Sarkar, economist at the Indian Institute of Statistics.
But Vivek Dehejia, a professor at Carlton University, was more skeptical. “The speech was sparse on bold reforms and there was more discussion on local, self-sufficiency and Make in India (read import substitution). Color me skeptical at this point, ”he tweeted.
The opposition Congress party said the prime minister should have shown greater empathy in addressing the plight of thousands of migrants displaced by the closure, rather than simply “give a headline.”
“Dear Prime Minister, the gigantic heartbreaking human tragedy of migrant workers walking home needed compassion, care, and safe return. India is deeply disappointed by its total lack of empathy, sensitivity and failure to tackle the problems of millions of #MigrantWorkers! “The party’s main spokesman, Randeep Singh Surjewala, tweeted.
But, within Congress, Rajasthan Prime Minister Ashok Gehlot welcomed the stimulus announcement. The financial package announced by Prime Minister Modi ji was highly anticipated. Better late than never (der aaye durust aaye) We welcome this. Now, when details emerge, we would know exactly how different sectors would benefit, ”said Gehlot.
Among a series of reactions from members of the ruling Bharatiya Janata Party (BJP) praising the Prime Minister’s announcement, the Union’s information and outreach minister Prakash Javadekar said the Rs 20 million package was the largest India has seen. “Aatmanirbharta (self-reliance) is the new mantra,” he tweeted.
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