Prime Minister Narendra Modi said on Tuesday that India would provide 20 trillion rupees (244 billion euros) in fiscal and monetary measures to support an economy hit by a weeks-long foreclosure to fight the new coronavirus.
India has more than 70,000 cases among its 1.3 billion inhabitants and is expected to overtake China, the source of the epidemic, within a week. Modi said strict home stay orders would be extended beyond May 17 with a new set of rules.
In an address to the nation, he said the package was equivalent to 10% of India’s gross domestic product, and targeted unemployed multitudes and businesses in shock from the prolonged closure.
In March the government said it provided around 1.7 trillion Indian rupees ($ 22.6 billion) in direct cash transfers and food security, mainly for the poor, but was widely accused of do too little.
Modi said details of the new package, as well as land and labor market reforms, will be released in a few days: “The package will also focus on land, labor, liquidity and laws. small businesses, workers, the middle class, industries, among others. “
Economists said the new package included the March allocation as well as the liquidity measures announced by the central bank worth 6,500 billion rupees.
“The overall announcement looks positive. It would include about 6.5 trillion rupees already made by RBI (Reserve Bank of India) and the first package. So, another 13.5 trillion rupees,” said Sandip Sabharwal, a manager of Mumbai-based fund.
“It doesn’t match the details of the government’s gross borrowing, so we have to look at the details. The number of stocks should, however, excite the markets in the short term.”
Last week, India increased its borrowing program for the year to 12 trillion rupees, up from 7.8 trillion to finance some spending.
Economy slows, spending rises
Even before the pandemic, India’s growth slowed and public finances were strained due to poor tax collection and increased spending.
Last month, the Fitch rating agency said that India’s sovereign rating could come under pressure if its fiscal outlook deteriorates further as the government tries to tackle the coronavirus crisis.
Some commentators said it was too early to say how effective the package would be. “Very often when the government made these huge, very important announcements … the numbers were often faked,” Yogendra Yadav, founder of the opposition party Swaraj India, told a television station.
“What we have right now is a declaration of intent. How can you argue with intent?”
Modi said the land and labor market reforms are aimed at making India more competitive and a big player in global supply chains, some of which may leave China after the pandemic.
Business leaders say potential investors often choose Vietnam, Thailand or Bangladesh before India because of the time required to buy land for factories, restrictive labor laws, and higher borrowing costs .
“These reforms will boost business, attract investment and further strengthen the” Made in India “,” said Modi.
Governments and central banks around the world have released unprecedented amounts of budgetary and monetary support to economies that are in shock from the pandemic.
“India’s response has so far been lukewarm compared to other key countries and therefore catching up is welcome and is also the need of the hour,” said Madhavi Arora, chief economist at Edelweiss FX and Rates.
“You have to see how much will be in the form of direct budget support to assess the immediate financial impact and the sources of funding that flow from it.”