20 Lakh Crore: Indian Economic Stimulus Package
Published on : Thursday 21-05-2020
The Government of India introduced an economic stimulus package of Rs 20 lakh crore on May 12, 2020. It works out to roughly 10% of the GDP of the country, targeting to rectify the Indian economy from the COVID-19 crisis. It is expected that the stimulus will help in reforming the paradigm of the Indian manufacturing industry to integrate into the global value chain.
The relief package covered the liquidity measures of the Reserve Bank of India (RBI), immediate growth in spending to show immediate effect in the short-term such as the rural jobs guarantee program, and loan guarantees. The headline number seems to be huge through the involvement of the RBI, the actual individual investment from the central government seems to be small.
“The authorities target to maximize the bang for the limited buck, with most of the relaxation either regulatory in nature or pondered in its contingent liabilities as opposed to specific budgetary support. Meanwhile, it has used the quilt of the COVID-19 disaster to plow through long pending, politically touchy reforms” – Nomura Global Market Research
Will the package connect to meet the Demand in COVID-19 Crisis?
The announced economic stimulus package by the government is judicious and primarily contains measures to assist the economy in the medium-run. While in the short run, there is expected to have more measures from the government to revive the economy hit in rural areas. Therefore, the increase in MGNREGA allocation to over 1 lakh crore in total is aimed to direct impact on demand and generating work equal to 300 crore person-days to address the payment needs of migrant workers in the overall term of economic retirement.
However, it may not enough allocation to the migrant workers in MGNREGA. They're expected to increase in need of allocated funds, as more and more migrants’ workers are moving back home. Also, the government has increased the daily wages of workers from Rs 182 to Rs 202. Though, the government needs to increase its investment share in order to meet if the trend of higher enrollments under the scheme continues.
In the manufacturing industries, the approval of unguided and government-guaranteed loans to the companies is influencing the experts to re-start the manufacturing plants with the following lay-offs. As per the Automotive Component Manufacturers Association of India (ACMA), the introduction of the economic package is indeed and brings much-needed relief to the stressed manufacturing companies, which primarily categorized under the MSMEs.
“The following schemes seem to be more effective and efficient in the short-term – the growth in loan guarantees for MSMEs and NBFCs, respite from the IBC process, MGNREGA outlays, and free food. Its effectiveness is depending on its implementation at the ground level, which can be proved powerful over the medium-term for these areas as well – privatizing public sector enterprises, implementing commercial mining policy, and passing laws to revitalize agriculture marketing” – Chief Indian Economist, HSBC
At completion, the Government of India is taking necessary steps to reboot the economy amidst the COVID-19 crisis, by creating employment for migrant workers in the short-term, along with the proper arrangements in order to gain trust from the domestic workers through increasing investment in MGNREGA. Allocation of government-guaranteed loans to the MSMEs to start the production to meet the consumption demand in the medium term to relieve the Indian Economy from the COVID-19 crisis.
