The long-awaited economic package to get the Indian economy back on track was finally announced by Prime Minister Narendra Modi on May 12. Faced with the prospects of the worst economic downturn ever, it was imperative for the government to provide the stimulus for shoring up the economy.
The Prime Minister sought to meet such expectations by making two sets of announcements: first, by setting the objective of a ‘self-reliant’ India, the contours of which are yet to be defined; and, second, by announcing a Rs 20 lakh-crore package, which is about 10 percent of India’s GDP. This package is roughly the size of the initial economic stimulus provided by the United States, which was followed up by a similar package provided by the Federal Reserve.
The first point of interest is to understand the financing of this package.
The Prime Minister mentioned in his speech that the decisions of the Reserve Bank of India (RBI) since the COVID-19 outbreak would also be regarded as economic announcements of the government. In this period, the RBI had taken four decisions, Rs 6.9 lakh-crore absorbed under reverse repo operations in April, and three other operations, namely, Targeted Long-Term Operations, Refinancing Facilities for All India Financial Institutions, and Liquidity Lifeline for Mutual, each of which was Rs 50,000 crores each. In late March, Finance Minister Nirmala Sitharaman had announced Rs 1.7 lakh-crore relief package under the Pradhan Mantri Garib Kalyan Yojana for the poor. Finally, the government enabled itself last week by borrowing Rs. 4.2 lakh-crore, which was in addition to the Rs. 7.8 lakh-crore provided in the Union Budget of 2020-21. However, all of the above measures add up to only about Rs 14.3 lakh-crore.