India introduces fiscal, monetary stimulus to curb economic impact of Covid-19

By Sarkaritel March 28, 2020 12:26

India’s Finance Minister Nirmala Sitharaman

New Delhi [India], March 28 – India has taken two landmark steps as the world’s second most populous country battles coronavirus (Covid-19) pandemic amid a nationwide lockdown.

From a fiscal standpoint, it announced aRs 1.7 lakh crore package aimed at low-income households and the poor. This will be done through a combination of direct cash transfers, food security measures and fuel subsidies.

Besides, frontline medical staff like doctors, nurses, paramedics and medical sanitation workers will be provided with medical insurance of Rs 50 lakh each. Prime Minister Narendra Modi ordered a nationwide lockdown that came into place on March 25.

From a monetary perspective, the Reserve Bank of India (RBI) unveiled a series of measures to boost liquidity by changing key interest rates. As a result, it expects to inject about Rs 3.74 lakh crore into the banking system.

However, experts say the relief packages will help only if it reaches those in need. With poor downstream supply chains and a vast informal sector workers, a limited-term basic income scheme must be introduced.

Japanese brokerage Nomura said the economic package, which amounts to 0.8 per cent of India’s gross domestic product, is important from the standpoint of social welfare but does not address the cash flow challenges faced by small and medium enterprises and other hard-hit sectors such as aviation, hotels and tourism.

But Finance Minister Nirmala Sitharaman said those affected directly, particularly the poor, migrant workers, women and other disadvantaged sections of the society will get the help they need.

The package offers 80 crore people each five kg of either wheat or rice for free per month over the next three months in addition to the same quantity they already get at highly subsidisedrates through the country’s public distribution system. Each of these households will also get one kg of its preferred cereal per month free over the next three months.

About 8.7 crore farmers will get Rs 2,000 each in the first week of April under a farmer welfare scheme which is already in place, she said. The wages of rural workers too will be increased, a move that will benefit five crore families nationwide.

“We do not want anyone to remain hungry so we will be giving enough to take care of their food grains requirement and protein requirements in terms of pulses,” the minister said.

The development come as economists from Morgan Stanley and Goldman Sachs now believe that Covid-19 is pushing the global economy into recession.

A global recession is now the base case, said Morgan Stanley economists led by Chetan Ahya. They see growth falling to 0.9 per cent this year. The Goldman Sachs team led by Jan Hatzius sees growth weakening to 1.25 per cent.

Both groups expect the global economy to rebound in H2. The recession will not be as steep as the 0.8 per cent contraction of 2009, according to the International Monetary Fund’s measure, but will be worse than the 2001 and early 1990s recessions.

But there is still a lot of uncertainty as to how long the spread of the virus will take and its economic consequences as factories, stores, restaurants and schools close. Other risks include slow government response and a freezing up of markets and credit.

China is projected to face the brunt of the economic contraction in the first quarter before rest of the world absorbs the second quarter hit, said Morgan Stanley. The country’s economy will shrink by 5 per cent in the first quarter before rebounding to expansion through 2020.

While the US economy will contract by 4 per cent in the second quarter, the eurozone will face the biggest drop with full-year growth slipping to minus 5 per cent, the economists added.

By Sarkaritel March 28, 2020 12:26