The first three stimulus packages – case of high hopes and realistic implementation

The safe and swift reopening of the economy more than anything else will be the key to recovery of the economy and alleviation of distress of these sections of society.

May 16, 2020 / 06:38 PM IST

Dhiraj Relli

The focus of the first set of announcements was ensuring liquidity / credit flow to MSMEs, help discoms tide over liquidity crunch, the second set concentrated on alleviating the hardships caused to the farmers, migrant workers and street vendors due to the coronavirus-induced lockdown restrictions.

Although the intent of these announcements was no doubt sincere and good, markets were disappointed with the first two set of announcements because the immediate spend out of the big fiscal stimulus is relatively small and hence there were doubts on whether economic growth will revive soon and in proportion to the large figure of the stimulus.

Worries about a rating downgrade could get postponed. However to be fair, in most major countries, 50-90 percent of the stimulus amounts comprise of contingent liabilities like loan guarantee, conditional capital infusion. The rest are fiscal measures – revenue foregone and additional spending.

The third set of announcements by the FM consisted mainly of providing relief to rural population. This included fisheries, animal husbandry, agri infra, micro food enterprises and farmers. The stimulus figure in this set was not very high and included some already announced spends and some fresh spends.


Also the timeframe of spends in some cases extends beyond the current fiscal. The proposed amendment to Essential Commodities Act is the most exciting part. It is very welcome and can have large beneficial impact on Indian rural economy and its GDP if done fairly, transparently and swiftly. However one hopes that the states and/or traders lobby don’t put impediments in this plan due to political or commercial considerations. This reform agenda for agriculture can improve productivity, reduce volatility of farm income and modernise Indian agriculture.

PM Modi’s Rs 20 lakh crore economic stimulus programme to deal with the fallout from the coronavirus pandemic has been all about liquidity measures (either credit guarantee schemes or new fund creations to be shouldered by banks and financial institutions), with small extra budget spending.

As per rough calculations total expenditure from three set of announcements till May 15 would be less than Rs 1.4 lakh crore (around 0.7 percent of GDP). This is understandable as there is very limited space for fiscal stimulus as the government’s revised market borrowing of Rs 12 lakh crore, is expected to be used largely for meeting revenue shortfall.

The announcements will help to support the more vulnerable segments of the population. However these measures can only serve to prop up the segments that are under distress. The safe and swift reopening of the economy more than anything else will be the key to recovery of the economy and alleviation of distress of these sections of society.

The author is MD & CEO at HDFC Securities.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Moneycontrol Contributor
first published: May 16, 2020 06:38 pm

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