The second economic stimulus package can be expected “very soon”, Chief Economic Adviser Krishnamurthy V Subramanian said in an interview on Saturday, although he declined to put a time-frame or a magnitude to it.
Prime Minister Narendra Modi met with home minister Amit Shah and finance minister Nirmala Sitharaman on Saturday in the context of a stimulus package and an official familiar with the matter said on condition of anonymity that in a series of meetings on this theme the Prime Minister has, over the past few days reviewed trade, commerce, coal and mining, defence, aviation, power, agriculture, and the education sectors.
The PM chaired a meet on strengthening the micro, small and medium enterprises (MSME). “Chaired a meeting on strengthening our MSME sector, which plays a pivotal role in economic development,” he tweeted. He discussed interventions in the financial sector and structural reforms needed to spur growth. At the meeting with the finance minister and other officials, he also discussed strategies and interventions to support MSMEs and farmers, enhance liquidity and strengthen credit flows. The PM discussed ways to ensure financial stability and measures taken to enable businesses to recover quickly.
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The focus of the package, when it is announced, will be making the Indian economy self-reliant and turning the current crisis into an opportunity, a second person familiar with the matter said, asking not to be identified.
The ongoing coronavirus disease (Covid-19) pandemic and the lockdown enforced to slow its progress have roiled the economy. On Friday, the government announced a graded exit from the lockdown over two weeks starting May 4. However, in so-called red zones, the most affected or most at-risk parts of the country, many of the restrictions will continue. The IMF has said India will grow by 1.9% this calendar year.
“We have to keep in mind, this is not something that is specific to India, but a global pandemic. This is an extremely uncertain period, so any projection we make will have to be continually recalibrated as things evolve.IMF has said India will grow at 1.9% when the global economy is going to shrink at 3%… They put in several caveats as they should. Even with the Spanish Flu, there was a V-shaped growth after. With that in mind, overall, I would say between 1-2% of GDP is something I would think,” Subramanian said.
Meanwhile, the government has already received specific proposals of policy reforms and fiscal incentives from various stakeholders and industries but a final decision will be taken after careful assessment of various sectors of the economy, the two officials cited above said. Industry has proposed a comprehensive stimulus package worth Rs 16 lakh crore, which includes welfare measures, policy reforms and fiscal concessions, to revive the economy. The government has come in for criticism over the delay in announcing a stimulus package.
Subramanian said that the delay was because of the government’s desire to come up with a “comprehensive” one. “Primarily, the work is on trying to make it very comprehensive. Not just in terms of the stimulus, but bringing in some reform measures as well. Policy-making is also about balancing different interests. Do recognise that during the period of the lockdown, economic activity has remained down.”
The primary focus was containing the spread of the pandemic, and providing relief to the poor, the two officials said. Now, the next big agenda of the government is to bring the economy back on track.
“A stimulus is expected sooner than later and it is a work in progress. But, it will neither be the first stimulus, nor the last. The government will provide relief to every sector in a caliberated manner so that the limited resource can be utilised most effectively. The immediate focus would be on rural economy, informal sector, MSMEs (micro, small and medium enterprises) and those big industries that would have rippling impact on the three. Public money will be spent in a measured way so that maximum desired results for the entire economy are ensured,” the first official said.
Subramanian, however, did not put a number to the possible package. However, he added that reports of a stimulus as much as 10% of the GDP in the US and 15% in the UK are exaggerated. “Take the UK, which has a 350-billion pound guarantee programme. Now entire cost of that is not 350-billion pounds but a fraction of that — possibly 35 billion. So the number that is floating around of 15% of GDP, isn’t accurate — actual number is 3.7% of GDP. Similarly, the US number is 6.7% of the GDP and not 10%. That’s something we have done carefully, we’ve looked at each of those numbers.”
He also said that India can’t compare itself to the US . “40-50% of the US population pays taxes while in contrast the number in India is less than 10%. We cannot cherry-pick some of these aspects, there are significant differences that you have to keep in mind,’’ he said.
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