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Covid-19: Fresh Sector Specific Economic Stimulus May Be Needed in India, Say Analysts

New Delhi (Sputnik): On 12 May, Prime Minister Narendra Modi rolled out a $266 billion stimulus package to help the economy and businesses survive the Covid-19 crisis. In March, his government also announced free food grain for the poor. This programme has now been extended until November.

The Indian government’s multi-billion dollar economic stimulus package and banking regulator,  Reserve Bank of India’s (RBI), liquidity infusion worth over $8 billion and a six-month loan moratorium scheme appear to have failed to stoke demand growth in the economy.

In fact, going forward, Goldman Sachs has said that Indian growth may remain subdued on account of rising bad debt in the banking system, poor credit offtake, and fiscal pressures. Meanwhile, India’s top banker Uday Kotak has also warned of bad debt to the tune of $66 billion due to the Covid-19 pandemic.

A youth watches Indian Prime Minister Narendra Modi's address to the nation on his mobile phone during a government-imposed nationwide lockdown as a preventive measure against the COVID-19 coronavirus, in Siliguri on 12 May 2020.  - Sputnik International
Experts Sifting Through PM Modi's $266 Billion COVID Economic Stimulus Say Real Benefits Far Less
Demand growth remains elusive. If the auto sector is any indication of consumer sentiment, the picture remains gloomy. Auto sales in India have dipped by 75 percent in the April – June period of 2020 compared with the same period last year, according to recent data from the Society of Indian Automobile Manufacturers (SIAM).

The body said that commercial vehicle sales have fallen by 85 percent in Q2 compared with the corresponding period of last year.

Partly this is due to the fact that India was under a complete lockdown in April and May due to the Covid-19 pandemic, but SIAM says that in the coming months the challenge will remain and warns of a “deep slowdown” in the automobile sector.

Yet another disturbing trend is the plateauing business resumption index in July compared with June.

The Nomura India Business Resumption Index (NIBRI), which is a weekly measure, has been consistently falling since the end of June. For the week that ended on July 12, the index was at 66.8 compared with 69.8 on 5 July and 70.5 at the end of June.

Nomura observed that the “plateauing of NIBRI is a worrying sign that the recovery may lose some steam after the initial post-lockdown normalisation.” 

Economists believe that the measures announced by the government in the stimulus package may take some time to show an impact on the ground and that sector specific measures may have to be taken by the government.

Economist N.R. Bhanumurthy, the vice chancellor of the BR Ambedkar School of Economics, told Sputnik, “There is a need to have little bit of patience. The impact of the measures taken by the government will take time to be visible on the ground.”

“Allotment from the credit guarantee scheme has already been made to the small businesses and $2.66 billion has been released to the agriculture sector. These steps will take time in showing up results. It may take two to three months before the impact starts of the measures announced in May start trickling in.”

Bhanumurthy maintains that the government may have to take sector-specific measures when the economy starts recovering. These sectors could be banking and financial sector. “The government has already provided capital to the public sector insurance companies. It may have to provide additional capital for banking sector too,” he stated.

An infrastructure sector analyst, while requesting anonymity, told Sputnik that a number of sectors are facing challenges due to the Covid-19 pandemic such as civil aviation, transport and tourism and these may also need some hand holding going forward.   

In May, the Indian government made a series of announcements pertaining to the economic stimulus in wake of the Covid – 19 pandemic. Between 13-17 May, Indian Finance Minister Nirmala Sitharaman made a detailed announcement of every scheme that the government formulated for the economy.

The stimulus included collateral-free automatic loans for small businesses and a liquidity facility for non-banking financial companies, among others.

Sources in the Ministry of Finance revealed to Sputnik that Minister Sithraman is taking feedback from stakeholders in the economy. She has held deliberations with exporters, jewellery sector representatives and public sector enterprises.

Sources said that necessary measures will be taken as and when required.

That said, the global ratings agencies and banks have projected a deep recession in India for the financial year 2020-21.

Nomura, Goldman Sachs, and Fitch Ratings forecast that Indian growth will contract by 5 percent in 2020-21. Nomura predicts that in April – June 2020, the peak lockdown period, India will see a contraction of 25 percent. The Japanese investment bank adds that India is unlikely to achieve pre-pandemic levels of growth for the next three years.

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