India plans to spend about 10% of its gross domestic product to stem the fallout of the coronavirus pandemic on Asia’s third-largest economy.
The package totaling 20 trillion rupees ($265 billion) will help the economy get back on its feet after weeks of stay-at-home restrictions, Prime Minister Narendra Modi said in a televised address to the nation Tuesday. The finance minister will give details Wednesday onwards, he said. The figure announced by Modi includes some of the 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,” Modi said. Keeping that in mind provisions have been made in the economic package, he said.
122 million people lost their jobs in April
The spending plan coupled with tax breaks for new plants, and incentives for overseas companies is an attempt by Modi’s administration to lure investors and stop the coronavirus pandemic from wrecking the economy. Asia’s third-largest economy is hurtling toward 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 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.”
Modi has 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.
Call for support measures
Companies have been urging the government for weeks to increase support measures. While Hero MotoCorp Ltd., 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 $300 billion package.
The announcement which came after market hours helped boost SGX Nifty futures, which rose 4%. 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,” Abhimanyu Sofat, head of research at IIFL Securities Ltd. “The funding of this huge amount is now the key focus and bonds may see sharp reaction.”
The Reserve Bank of India last month injected more than $50 billion into India’s economy, or over 3.2% of GDP.
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