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Modi Pledges $265 Billion Aid to Revive India’s Economy

India Boosts Aid to Economy With Package Totaling $265 Billion

(Bloomberg) --

Indian Prime Minister Narendra Modi said his government will spend a total of 20 trillion rupees ($265 billion) to help Asia’s third-largest economy weather the fallout of the coronavirus pandemic.

The package amounting to 10% of the nation’s gross domestic product will help the economy get back on its feet after weeks of stay-at-home restrictions, Modi said in a televised address to the nation Tuesday, without giving details. The figure announced by Modi will include measures already unveiled by the government, and also by the central bank such as provision for cheap cash to banks and the reduction in its cash reserve ratio.

Modi Pledges $265 Billion Aid to Revive India’s Economy

“This economic package will be a crucial link in the creation of a self-reliant India,” Modi said, adding that the finance ministry will unveil details from Wednesday. “It will focus on areas like land, labor, liquidity and law.”

The spending plan coupled with proposed tax breaks for new plants, and incentives for overseas companies is an attempt by Modi’s administration to lure investors and stop the coronavirus pandemic from wrecking the economy. India is hurtling toward its first full-year contraction in four decades. An estimated 122 million people lost their jobs in April while consumer demand has evaporated.

The “package is not all new spending,” said Akhil Bery, a Washington-based analyst at Eurasia Group. “A significant portion is expected to be spending that is already budgeted and but merely moved up.”

Measures already announced by the Reserve Bank of India and the government add up to $102.6 billion, Bery said and expects the bulk of the new package to focus on supporting workers and small and medium-sized enterprises through steps like unemployment insurance for laid off workers and incentives for companies to keep workers on their payrolls.

Modi has also come under criticism on the pain inflicted on India’s poor due to the sustained lockdown since March-end. In the past few days, the movement of millions of migrant workers from the cities where they had jobs to their homes in rural villages -- and their reluctance to return -- have dominated news.

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Meanwhile, companies have been urging the government for weeks to increase support measures. While Hero MotoCorp Ltd., India’s top motorcycle maker, had sought a “suitable stimulus package,” lobby group Associated Chambers of Commerce and Industry of India wanted at least a $300 billion package.

“The magnitude of the package is bigger than expected,” Abhimanyu Sofat, head of research at IIFL Securities Ltd. “The funding of this huge amount is now the key focus and bonds may see sharp reaction.

Stocks jumped the most in almost two weeks on Wednesday after Modi’s announcement, while sovereign bonds declined as traders braced for a further jump in government borrowing. Benchmark yields have risen 20 basis points to 6.16% in last two sessions as traders await measures from the central bank to help mop up debt after the government raised its borrowing target to 12 trillion rupees for the year that began on April 1.

Modi’s latest announcement came a day after he met via video conference with state chief ministers. “We have a two fold challenge -- to reduce the transmission rate of the disease, and to increase public activity gradually, while adhering to all the guidelines,” Modi said in a statement on Monday after the meeting.

The country will enter the fourth phase of a lockdown with new rules which will be announced by May 18, Modi said on Tuesday.

By opening more of the economy while continuing to lock down Covid-19 hot spots, the government hopes to ease the economic impact of the world’s biggest social distancing exercise, which has crippled business activity and left millions jobless.

Infections are surging across the South Asian nation of 1.3 billion people, with number of confirmed cases nearly doubling since the beginning of May to 71,441 cases, including 2,310 deaths, according to data from Johns Hopkins University.

Some restrictions were eased on April 20 to allow farmers and industries to resume operations in rural areas and in districts that were free of infections.

Still, companies are facing difficulties reopening factories -- primarily because of travel restrictions, conflicting rules, broken supply chains and a shortage of workers.

The country meanwhile has started running special trains to take stranded workers to their homes. Indian Railways also partially resumed passenger train operations from Tuesday, nearly two months after the services were stopped.

“The uncertainty we still have in terms of how the lockdown will look from May 18,” said Indranil Pan, chief economist at IDFC First Bank Ltd. “So 20 trillion rupees is on the table, but if the lockdown continues for some more time, we have to see whether” the money will be released immediately or in phases, he said.

©2020 Bloomberg L.P.