What Economists Say About India’s Rs 20-Lakh-Crore Covid-19 Relief Package
Most economists cheered India’s large economic package and bold reforms to be self-reliant amid the new coronavirus pandemic. Some pitched for more fiscal measures.
The total package, including fresh measures and the earlier steps announced by the finance minister and the Reserve Bank of India, will be worth Rs 20 lakh crore, Prime Minister Narendra Modi said while addressing the nation on Tuesday.
The economists acknowledged that some of the measures could be a restatement of the existing schemes. But it is expected to have a positive impact on the economy, the economists said, as they await details.
India’s Covid-19 relief package will focus on land, labour, liquidity, and laws to revive the economy that has come to a standstill due to the six-week coronavirus lockdown. The highly contagious pathogen has so far killed more than 2,000 people in the country and infected over 70,000.
Here’s what the economists made of Prime Minister Modi’s relief package:
Room For Spending Left
The Reserve Bank of India’s stimulus and packages announced by the government add up to Rs 9 lakh crore worth of measures already undertaken, according to Barclays Research. “That leaves a room for another Rs 10.7 lakh crore of spending/support, which needs to be clarified,” it said in a report.
“From additional borrowing announced and fuel taxes delivered, we estimate the total on-balance sheet spending capacity is close to Rs 1.9 lakh crore, accounting for our revenue loss estimates of Rs 3.1 lakh crore," Barclays Chief India Economist Rahul Bajoria said.
The headline number of the economic package at 10 percent of India’s gross domestic product is “impressive”, according to Jefferies. “We estimate that a part of this package (around 5 percent of GDP) is already under implementation through the RBI’s pre-announced liquidity measures and a mini-package announced by the government.”
“The incremental package would be 5 percent+ of GDP. A part of the same could be restatement of the existing schemes,” said Mahesh Nandurkar, equity and macro strategist at Jefferies.
Expectation Of Fiscal Stimulus
Bank of America Securities expects the just announced additional Rs 4.2-lakh-crore package to fund an incremental fiscal stimulus of 0.75 percent of India’s GDP.
“We see a 160-basis-point downside risk to our 1.5 percent FY21 real GVA growth forecast, but will wait for stimulus details," said Indranil Sen Gupta, India Economist at Bank Of America Securities. “The 16.7-percent shrinkage in March industrial production is surely the shape of things to come.”
Sen Gupta expects the RBI Monetary Policy Committee to cut reverse repo rate by 50 basis points by October, with inflation peaking off at 2.5 percent in the second half of the current financial year.
Case For Fiscal Measures
According to UBS, fiscal policy measures can be more effective than monetary policy to support the economy at the current juncture. “The headline stimulus number is ahead of market’s expectations but we await details to discern its ability to drive a quicker growth recovery than our expectations.”
“Considering the already stretched government balance sheet, we believe a considerable amount could be directed towards bank guarantees to SME/MSME sector, refinance facilities and long-term tax breaks for industries (to boost manufacturing),” UBS’ Chief India Economist Tanvee Gupta Jain said.
More Than Expectations
The economic package announced by Prime Minister Narendra Modi is way above expectations of 1-1.2 percent of GDP, Goldman Sachs said.
Although it was not clear from the speech and details are not available yet, it seems that the package announced could include some previous economic measures taken by the government and the central bank to deal with the crisis.Prachi Mishra, Chief India Economist, Goldman Sachs
Pitch For Bolder Financial Sector Reforms
While Citi lauded the ambitious reform agenda announced by the prime minister, it said bolder structural changes were required in the financial sector, too.
“By explicitly referring to reforms in land, labour, agriculture, legal and administrative systems and infrastructure the PM has embarked on an ambitious reform agenda to make India more productive. Bolders tructural reforms in the financial sector is also need of the hour,” said Samiran Chakraborty, chief economist (India) at Citigroup Global Markets.
“While all these measures to boost domestic capacity is welcome, there could be a more explicit protectionist bent on the trade front in the near term as India shapes up to be more self-reliant,” he said.
Credit Suisse’s Neelkanth Mishra said both the headline number of the relief package and the focus on reforms are positive. Even though the amount includes earlier RBI and government measures, and new MSME guaranteed loans, it is still “large”, benefiting “laborers, farmers, tax payers, MSMEs”, he said.