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NEW DELHI: The Center announced on Tuesday a huge ₹20 trillion stimuli, comprising 10% of India’s GDP, to revive the economy that has been brought to its knees by a severe blockade of almost 50 days to contain the covid-19 pandemic.
Prime Minister Narendra Modi, in announcing the stimulus, said details of the package will be available starting Wednesday. Towards this, Finance Minister Nirmala Sitharaman will report to the media later today.
These are the five key things to keep in mind at the press conference:
PACKAGE DETAILS:
Modi in his speech had said that ₹The 20 billion package includes the prior stimulus of ₹1.7 trillion, as well as liquidity relief measures announced by the Reserve Bank of India (RBI). Analysts will want to know how much of the RBI measures – long-term repo operations, long-term repo operations and cut repo rates – the government has taken into account when designing the latest package and how much of it is new spending for boost the economy.
The prime minister also said that the economic package is aimed at workers, farmers, the honest middle class who pays taxes, as well as the Indian industry, including the artisan industry, MSMEs. The details of the allocation to these sectors will be important, especially the amount destined to rescue companies in crisis.
FINANCING THE STIMULUS:
The massive size of the stimulus announced largely caught everyone by surprise due to a lack of fiscal space and rating agency warnings that deterioration in India’s fiscal landscape could put pressure on its sovereign rating. The government has to resort to market loans or monetize the deficit by the RBI to finance the package.
The sources of financing for the package and the reaction of the market, as well as the rating agencies will be closely watched.
FISCAL IMPACT:
On May 8, the government sharply increased its gross debt for the current tax on ₹12 trillion, 54% more than budgeted, amid mounting pressures on revenue and spending due to the covid-19 pandemic. This is expected to increase the fiscal deficit to 5.5% of GDP from the target of 3.5% of GDP in fiscal year 21. It is unclear whether the finance ministry will take into account the ₹4.8 trillion loans as part of the stimulus package. However, any additional indebtedness this year will affect the fiscal deficit and the debt-to-GDP ratio in fiscal year 21.
TIME FRAME:
The most crucial bit is the time frame for implementing the package. If he ₹20 trillion rewards are spread over two to three years, you may not be very excited about the market and the industry. Conversely, bringing spending forward in fiscal year 21 could boost sentiment and provide growth momentum to the economy.
THE REFORMS:
In announcing the package, Prime Minister Modi indicated his government’s determination to carry out bold reforms in areas such as land, labor, liquidity and laws to build a “self-sufficient India”. The strength of the reforms could reposition Modi as an economic reformer.
Modi has tried to empower farmers by creating supply chains as well as streamlining tax systems. In the past, several attempts at a new direct tax code to replace the nearly six-decade-old Income Tax Law have failed, with the latest recommendations, made by a task force, still under consideration.
Concerned about encouraging local manufacturing and global companies that rely more on technology for the delivery of goods and services, streamlining direct taxes and expanding their coverage of the digital economy will remain a key priority for the administration from Modi. Last year, the government offered direct investment-linked tax incentives for sunrise industries, such as those involved in the production of semiconductors, electric charging stations, and lithium-ion batteries that have the potential to boost production. local. Simplifying customs procedures further, an area of reform often singled out by the World Bank for its ease of commercial reporting is also likely to be a priority.
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