Prime minister Narendra Modi, on May 12, 2020, announced a Rs 20-lakh-crore stimulus package to support the economy in the aftermath of the Coronavirus crisis
As India planned to enter into the fourth phase of the lockdown from May 18 to stem the number of Coronavirus infections, prime minister Narendra Modi, on May 12, 2020, announced a Rs 20-lakh-crore stimulus package, to support the economy. Modi has extended the lockdown in India till May 30, albeit with some riders, as Asia’s third-largest economy attempts to mitigate the sweeping damages caused by the pandemic.
In the coming days, finance minister Nirmala Sitharaman will provide the details of the mega package, which is among the most substantial stimulus packages in the world, against the pandemic. While Japan has announced a $992-billion Coronavirus relief package, which is over 21% of its GDP, the $2 trillion stimulus package announced by the US works out to be nearly 13% of that country’s GDP.
India’s support measure is likely to focuses on tax breaks for small businesses and incentives for domestic manufacturing. Being the second-highest employer in the country, real estate could be a big beneficiary of the fiscal stimulus, Colliers International India said, in a statement.
Note here that the new package, which is equivalent to around 10% of India’s GDP, includes the earlier Rs 1.7-lakh-crore package announced in March 2020, as well as the various measures launched by the Reserve Bank, including liquidity measures and interest rate cuts.
The centre and the Reserve Bank of India (RBI) have announced several measures in the past, to support the economy as analysts forecast that a prolonged national lockdown to counter the Coronavirus outbreak might push India’s already-ailing economic growth to a record three-decade low.
The number of infections in India has reached to 73,981 while the death toll has touched 2,408 as on May 12, 2020.
After the central government announced a USD 22.6-billion (Rs 1.7 lakh crore) stimulus package, to provide direct cash transfers and food security measures to millions of poor people left vulnerable by the lockdown, the RBI announced a 75-basis point reduction in its interest rate, to bring it down to 4.40%, after an emergency meeting via video-conference of its monetary policy committee (MPC) on March 27, 2020.
A nation-wide lockdown that has forced India’s 1.3-billion people to stay indoors leaving millions of low-income households, which depend on daily wages to maintain their livelihood in Asia’s third-largest economy, most vulnerable while also battering economic activity in the country and bringing many a corporations on the brink of insolvency.
India’s growth fell to an over six-year low of 4.7% in October-December 2019, and is likely to fall to 2.4% in January-March 2020, says ICRA. Rating agency Moody’s, on the other hand, projected job losses to accelerate across countries in the aftermath of COVID-19, resulting in widespread loss of income for businesses and individuals.
Government’s USD 22.6-billion stimulus package against Corona
Under the previously announced USD 22.6-billion stimulus package, the centre would top-up the 5 kgs of grain that low-income households earn per month at a heavily subsidised rate, with an additional 5 kg of grain per person for the next three months for free. Each household would also get 1 kg of pulses during the period, without any cost. The move is likely to help 800 million people, finance minister Nirmala Sitharaman said. On the cash transfer front, it would hand out free cooking gas cylinders to 83 million families, a one-time cash transfer of USD 13.31 (Rs 1,000) to 30 million senior citizens and USD 6.65 (Rs 500) a month to about 200 million poor women for next three months.
The lockdown: As of May 12, 2020, nearly half the world’s population was under some form of restriction. China, France, Italy, New Zealand, Poland and the UK have implemented the most restrictive mass quarantines. China’s Wuhan, where the virus first appeared, on the other hand is now on it way to opening up after successfully countering the growth of the virus.
RBI’s USD 50-billion liquidity booster against COVID-19
The RBI also announced its biggest rate cut since 2009, along with key measures to boost liquidity in the banking system to the tune of USD 50 billion (Rs 3.7 lakh crore) and a three-month moratorium on loan repayments, covering all banks and shadow lenders starting March 1, 2020. These remedies, by far are the most sweeping steps by the central bank in the time of crisis, and is expected to boost liquidity and ease stress in the banking sector, which has been affected by an ongoing crisis in NBFCs, even before the contagion spread.
“Such steps, in turn, will go a long way to prevent financial stress in the real economy and ensure continuity of businesses and provide relief to borrowers in these extraordinary times,” Reserve Bank of India governor Shaktikanta Das said in an online broadcast, adding that individuals or corporates missing interest payments during the moratorium would not be considered as defaulters.
The government support package
Food security: 800 million people to get 5 kg grain and 1 kg of dal for free for the next 3 months
Direct cash transfer: In first installement, Rs 2,000 under PM-KISAN to be paid to 87 million farmers under this direct transfer scheme.
Medical insurance: Medical insurance cover of Rs 50 lakhs each for healthcare staff.
Wage under MGNREGS: Per day amount increased from Rs 182 to Rs 202.
Organised sector workers: Government to pay EPF contribution of both employees and employer for next 3 months if 90% staff earns less than Rs 15,000 per month.
EPFO rules: To be amended to allow the withdrawal of up to 75% of PF corpus as non-refundable advance or three months’ salary, whichever is lower.
Construction workers: 35 million building and construction workers to benefit from the Rs 31,000-crore welfare fund.
Poor widows, aged and divyang: Ex-gratia of Rs 1,000 for the next 3 months, payable in two instalments.
Women with Jan Dhan Yojana accounts: 200 million to get ex-gratia payment of Rs 500 each for the next 3 months.
Women in self-help groups: 6.3 million SHGs to get up to Rs 10 lakh collateral-free loans.
Ujjwala scheme: Beneficiaries will get free cylinders for 3 months.
GST: No penalty on late payments for 3 months.
Income tax: ITR filing date extended till June 30.