Covid-19 impact: Stimulus 2.0 ready as PM Modi, FM Sitharaman hold meeting

Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman, and senior policymakers in the Prime Minister’s Office and finance ministry met on Thursday to finalise a second stimulus package for those worst affected by the Covid-19-related nationwide lockdown.
 

An announcement is imminent. The Centre is unlikely to announce one “big-bang” stimulus package and instead will come up with smaller, targeted announcements, Business Standard has learnt.
 

This means that over the coming months, there will be a series of stimulus packages to revive the economy.
 

Additionally, the fiscal situation of the Centre and the states has been discussed at the highest levels of government, and there are deliberations going on regarding relaxations to the Fiscal Responsibility and Budget Management (FRBM) Act.

The upcoming package could be roughly similar in size to the Rs 1.7-trillion package, announced by Sitharaman in late March. That package was around 0.8 per cent of GDP, much smaller than that of most other G20 nations.
 

The United States’ stimulus package was pegged at 11 per cent of GDP, Australia’s at 9.7 per cent, and Brazil’s at 3.5 per cent, according to data portal Statista.
 

Industry bodies like Assocham and the Federation of Indian Chambers of Commerce and Industry have been asking for big-bang packages, ranging from Rs 9 trillion to Rs 23 trillion.
 

Senior government officials are saying the Centre has decided to have smaller, targeted announcements rather than one big package.

“Our approach is not one grand plan but repeated responses. Unlike other countries, there will be no single package worth 5 or 10 per cent of GDP, but rather a step-by-step approach. In times of uncertainty, we cannot expend all our resources in one go,” said an official aware of the deliberations within the government.

The upcoming package will again be aimed at the urban and rural poor, including migrant labourers stuck in places away from their homes; other disadvantaged sections of society; micro, small and medium enterprises (MSMEs); and likely some of the worst-affected sectors as well.

On Wednesday, the government allowed economic and industrial activity to resume in rural areas, where the harvesting season for Rabi crops has begun. This has been done primarily with the intention of “rural and agricultural development and job creation”. Prohibition will not be entirely lifted in commercial and manufacturing but production units in rural areas, industrial estates, and export zones can reopen if workers stay on their premises or nearby.

The measures being finalised could include easier access to credit for MSMEs and further cash and food transfers. There is a proposal for another hike in payments under the Mahatma Gandhi National Rural Employment Guarantee Scheme, and disbursements under the PM-KISAN scheme could be further expedited.
 

Some decisions the Union Cabinet took on Wednesday but have not made them public may find their way into the package.
 

Meanwhile, sources say given the revenue crunch that the Centre is facing, and in the light of states seeking more funds to battle the pandemic, the Centre and states’ existing fiscal commitments have also been discussed at top levels of government. The Centre is looking at multiple options, including relaxing the FRBM Act or whether the Reserve bank of India should monetise the fiscal deficit or not.
 

According to the FRBM target, the Centre’s fiscal deficit is slated to be 3.5 per cent of GDP. Multiple experts, including former chief economic advisor Arvind Subramanian, have said the Centre should provide immediate clarity for itself, the states, and the markets, on relaxing the budgetary, borrowing, and fiscal targets.