4 Mins Read
Indian Stimulus Package to Combat the Novel COVID-19
In India, the COVID-19 cases increase to around 20,000. But, people fear that the numbers seem low due to a lack of testing. The Indian government has been swift in its response to COVID-19. As of now, India is in lockdown from 25th March to 3rd May. In the hopes that it will slow down the spreading of the virus. Furthermore, it will give them time to prepare the healthcare system for a wider outbreak. The lockdown and quarantine measures have sent the markets reeling. Due to a slow down, the Indian government has launched a stimulus package. The Indian stimulus package consists of emergency funds necessary for testing and fighting the virus.
Based on global trends, India will likely experience a spike in cases over the next few weeks. Moreover, social distance is more difficult due to higher population density. Today, let’s discuss the efforts of the Indian governments against COVID-19.
If you have not read our last blog on value investing during a recession, please read here.
Indian Stimulus Package
On 19th March 2020, they announced the formation of the COVID-19 Economic Response Task Force. The Task Force approved $1.5 billion for the production of critical drugs and $560million for medical equipment. It also permitted States to take food grains on credit from the Food Corporation of India for 3 months.
The Reserve Bank of India took several measures as well:
- $4 billion in forex swaps to provide dollar liquidity
- $5.7 billion in government bond purchases to help the bond market
- Provided $14 billion liquidity to the banks through the repo window
- Now, banks can raise funds for 1-3 years at the repo rate
On 26 March, the Indian government announced a $23 billion stimulus package. At a mere 1% of the GDP, this fund aims to help the weak sections of the society. The fund’s benefits include:
- Free grains for low-income families for 3 months. This includes 5 kg of wheat or rice and 1 kg of pulses delivered free of cost. It will try to cover 800 million poor people in the country.
- Hands out of free cooking gas cylinders to 83 million poor families in rural areas
- Better insurance for health care workers of up to $65,000
- One-time direct cash benefit transfer (DBT) to 30 million senior citizens and 200 million poor women
- 87 million poor farmers will also receive a direct cash payment of $27 along with other benefits
- Also, establishing a fund to help construction workers affected by the quarantine
Apart from these measures, other state and sector specific measures were also announced. Such as Uttar Pradesh state announced cash handouts of INR 1,000 per month for daily wage earners. The State of Punjab also announced cash handouts of INR 3000 to every registered construction worker.
Other Efforts by the Indian Government
The Securities and Exchange Board of India (SEBI) announced relaxation in compliance for:
- Mutual Funds
- Real Estate and Infrastructure Investment funds
- Listed entities
The government announced certain measures with regard to the corporate sector:
- Extended rules for mandatory board meetings for the next 2 quarters
- No fees will be charged for delayed corporate law filling from 1st April to 30 September 2020
- Expenses towards the outbreak will be considered as CSR activity
- Now, new companies will have to fill the Declaration for Commencement of Business for 12 months
The government also announced it will release INR 18,000 crores in pending dues. This includes income tax, GST, and customs tax refunds to small businesses and individuals. They also announced to impose expenditure curbs on a host of departments for the April-June period.
A Second Indian Stimulus Package
In April, officials indicated a second Indian stimulus package of roughly $13 billion. It shall focus on micro, small, and medium enterprise (MSME) sectors. The MSME sector employs more than 500 million workers. It also accounts for nearly one-fourth of India’s GDP. The benefits of this package could:
- Increase the limits of bank loans for working capital
- Increase the number of tax exemptions to lower the net tax paid
- Relax rules for the deposits of tax and other dues
They also said there could be a separate package for bigger companies after assessing the impact. Although, most of these details of a second Indian stimulus package are just speculations from various sources.
Another issue to ponder upon is the distribution channels for these benefits. How is the money going to reach the beneficiaries? No one should be forced to line up outside the banks during the outbreak.
The current measures for the healthcare system are poorly funded. The government needs to procure more medical equipment to fight the outbreak.
The Indian economy was suffering even before the outbreak. COVID-19 continues to further disrupt both demand and supply. The government should focus on providing tax incentives for short-term stimulus. Also, they should maintain a surplus of liquidity.
The country requires more funding to help the healthcare system and boost the economy. But, it is uncharted territory for the Indian government. Any size of the stimulus package would have not been enough. Unless they allocated 10% of the GDP like the developed countries. In essence, the government should be more aggressive with the stimulus. The economic impact on the country depends on the future severity of the COVID-19 outbreak. Only time shall tell the outcome.
Stay tuned with us on Tracking COVID-19! Furthermore, feel free to contact us at email@example.com
The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.
Post tagged underCOVID-19
Other stories you might like
5 Mins Read