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PM Narendra Modi speech: Rs 20 lakh crore package is eye-popping but devil is in the detail


Date: 13-05-2020
Subject: PM Narendra Modi speech: Rs 20 lakh crore package is eye-popping but devil is in the detail
The Rs 20 lakh crore stimulus package announced by Prime Minister Narendra Modi is the biggest ever India has seen in recent history and a much needed boost to lift the economy from the COVID-19 crisis. But the devil lies in the detail, especially considering the fact that this will include the stimulus measures announced by the Reserve Bank of India (RBI) and the government already to fight the virus.

Consider this. In two rounds, the RBI has announced about Rs 5.2 lakh crore as a stimulus package. The first was on March 27 when the RBI announced liquidity measures worth Rs 3.74 lakh crore and a steep 75 bps rate cut. The second was on April 17, when it announced another liquidity measures worth another Rs 1.5 lakh crore. Union finance minister Nirmala Sitharaman has also announced a Rs 1.7 lakh crore welfare package in March. That makes the total package that has come so far at around Rs 7 lakh crore.

Also Read | PM Narendra Modi's speech on coronavirus — Key takeaways

Given the government’s tight fiscal position, the remaining amount is likely to come through bank guarantees to small and medium enterprises, refinance facilities and long tax breaks for industries. This is because the government doesn’t have much fiscal room to infuse fresh money.

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Already with the recent announcement to borrow Rs 4.2 lakh crore more this year (Rs 12 lakh crore against Rs 7.8 lakh crore budgeted), the fiscal deficit is likely to go up around 5.5 percent. In this scenario, it is not clear from where the government will generate resources to find money to implement the Rs 20 lakh crore stimulus (about Rs 13 lakh crore if one excludes the amount announced already).

All indicators point to an economy groaning under the impact of the coronavirus. One of the world’s strictest lockdowns has left millions out of work  in India while infections keep rising.

India’s manufacturing output contracted by more than a fifth in March from a year earlier and in April, the unemployment rate rose to 23.5 percent from 8.7% the previous month, data released by the Centre for Monitoring Indian Economy, a Mumbai-based think tank, showed.

Separately, the government put the release of retail inflation data on hold due to inadequate collection of information from the field during the lockdown.

This is likely to push the Reserve Bank of India RBI) to ease rates and pump in more liquidity.

One needs to wait for finance ministry announcements on May 13. The government will have to either hikes taxes in some segments or seek RBI’s intervention to monetize the deficit. The government can also seek the re-cap bonds route to infuse capital in PSBs and make these banks lend to targeted segments.

Source:- moneycontrol.com

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