Prime Minister Narendra Modi on May 12 announced a Rs 20 lakh crore package to revive the economy ravaged by the coronavirus and the consequent lockdown, which he said will continue in an arrangement different from the three previous phases.
In a televised address to the nation, Modi said details of the package as well as Lockdown 4.0 will be revealed soon, adding that easing of restrictions will be based on the suggestions of the state governments. "All details will be out before May 18."
The third phase of the lockdown is due to end on May 17. Modi said there may be more relaxations, but cautioned that people will have to still take precautions including wearing masks and maintain social distancing.
Finance Minister Nirmala Sitharaman will announce more details on the stimulus package, equivalent to around 10 percent of India's GDP, Modi said. The FM is expected to announce the details on May 13.
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A Much-Awaited Package
The economic package is for labourers, farmers, honest taxpayers, medium and small enterprises and cottage industry, Modi said. "There is unprecedented crisis but India will neither get tired nor give up the fight against coronavirus," he said, and asserted that "we have to protect ourselves and move ahead as well".
Self-reliance was a big theme in Modi's speech. "The world's condition today teaches us that the way to achieve this is self-reliance," he said. “When we observe post and pre-coronavirus world, it's not just our dream but also our responsibility to ensure that the 21st century belongs to India.”
The stimulus package was much awaited by an economy gasping for breath and businesses struggling for survival. The government has begun to ease one of the world’s strictest lockdowns necessitated to keep infections spreading among 1.3 billion people, but has left millions bereft of jobs and stranded in places far from their homes.
India’s manufacturing output contracted by more than a fifth in March from a year earlier and in April, the unemployment rate increased to 23.5 percent from 8.7 percent 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.
Palpable Economic Stress and Strain
Investment bank JP Morgan said in a note to clients that details of the economic package will be key.
"The 10 percent of GDP package is likely to subsume the first announcement of about 0.8 percent of GDP but it is not clear whether it includes liquidity measures already announced by the RBI that amount to about 2.5 percent of GDP – which is likely given the reference to liquidity in the PM's statement; how much of this is a credit guarantee scheme versus fresh spending; and whether existing spending will be re-purposed for this package. Therefore there is no way to tell yet how much of this will translate into additional spending from the budget in the form of fresh stimulus."
The 20.6 percent fall in manufacturing was driven by the closure of thousands of factories after the government imposed a national lockdown in the last week of March. Economists said manufacturing was expected to face a severe slowdown for the next few quarters, presaging contraction of the economy by up to 0.5 percent in the current financial year beginning April, compared with earlier government estimates of around 6 percent growth.
Investment bank Barclays said the emphasis on self-reliance may indicate more protectionist tendencies.
"PM Modi indicated several times that India needs to be "self-reliant", invoking the material increase in COVID-19 related production for health and protection equipment as a measure of domestic manufacturing," it said in a note. "This is a trend which has persisted for the last few quarters, and has led to major custom duty hikes in recent years. We believe more measures to invert duty structures to protect and promote domestic manufacturing might be on the anvil, but we await more clarity."Follow our full coverage of the coronavirus outbreak here