India announces $266bn stimulus to revive coronavirus-hit economy

The finance ministry will start unveiling details of the package amounting to 10% of GDP from Wednesday

epa08417453 A migrant worker along with his family members rides on a cart, amid the ongoing COVID-19 coronavirus emergency lockdown, in Amritsar, India, 12 May 2020. India is currently going through 3rd phase of lockdown to contain the COVID-19 pandemic. Indian Prime Minister Narendra Modi has said that 4th phase of COVID-19 lockdown will be completely new along with announcing a hefty economic package, which would be equivalent to approximately ten percent GDP of India.  EPA/RAMINDER PAL SINGH
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Indian Prime Minister Narendra Modi said his government will spend a total of 20 trillion rupees (Dh976 billion / $266bn) to help Asia’s third-largest economy weather the fallout of the coronavirus pandemic.

The package amounting to 10 per cent of the nation’s gross domestic product will help the economy get back on its feet after weeks of stay-at-home restrictions, Mr Modi said in a televised address to the nation on Tuesday, without giving details. The figure announced by Mr Modi will include more than 5.5 trillion rupees of measures already unveiled by the government and the central bank.

“This economic package will be a crucial link in the creation of a self-reliant India,” Mr 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 Mr Modi’s administration to lure investors and stop the coronavirus pandemic from wrecking the economy. India is hurtling towards 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 an announced intention with no details,” said Nilanjan Mukhopadhyay, who has written Mr Modi’s biography. “The effort is to ensure that the attention is not so much on the virus but steps that the government is taking. The strategy seems to be to control the headline.”

Mr 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.

Meanwhile, companies have been urging the government for weeks to increase support measures. While Hero MotoCorp, 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 $300bn package.

The announcement, which came after market hours helped boost SGX Nifty futures 4 per cent. Bond yields may rise on fears of a higher budget gap due to the economic package.

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

The Reserve Bank of India has since March injected more than $50bn into India’s economy, or over 3.2 per cent of GDP, while finance minister Nirmala Sitharaman had offered $22.5bn of aid on March 26.

Mr Modi’s latest announcement came a day after he met through video conference 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,” Mr Modi said after Monday's meeting.

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

Elsewhere, Japan’s fiscal support stands at more than 20 per cent of GDP, while Singapore, Hong Kong and Australia have each rolled out spending amounting to 10 per cent or more of GDP.

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. “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.