RBI and Finance Ministry have already spent nearly half of Narendra Modi’s $270 billion stimulus⁠— watch out for changes to land and labour laws

Steps have already been taken to help the poor and boost liquidity i.e. money supply, investors can expect land, labour and other legal reforms.IANS

  • India’s latest package will be focussed on land, labour, liquidity and laws to encourage local manufacturing, Modi said on May 12.

  • However, between Shaktikanta Das and Nirmala Sitharaman, nearly $100 billion has already been announced or spent on reviving the economy

  • Steps have already been taken to help the poor and boost liquidity i.e. money supply, investors can expect land, labour and other legal reforms.
Indian markets cheered Prime Minister Narendra Modi’s ₹20 lakh crore (about $270 billion) stimulus package⁠— about 10% of India's gross domestic product (GDP) ⁠— with a 2.5% rally on the morning of May 13. While it is a welcome move from the government, for an economy ravaged by COVID-19 and the consequent lockdown, both the Reserve Bank of India and the Finance Ministry under Nirmala Sitharaman have announced steps that would amount to half of what Modi has promised now.

Sitharaman announced a ₹1.7 lakh crore ($22 billion) stimulus programme after the country went into total lockdown on March 25. This included measures like subsidised cooking gas, free foodgrains, and medical insurance for health workers, among others.

Shaktikanta Das, the RBI governor, outlined a ₹5.7 lakh crore ($76 billion) plan to revive the economy hit by the coronavirus. This included an interest rate cut, disincentives for banks looking to store money with the RBI instead of lending, moratorium on loan repayments for all borrowers, to name a few.

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Modi said the package has been designed keeping in mind all factors – land, labour, liquidity and laws, and promised to encourage local manufacturing and local brands. He also promised support for the poor and migrant workers but the measures to help the poor and to boost money supply, have already been taken.

StimulusAmountBig announcements
Modi's anouncement on May 12₹20 lakh croreThe focus will be on all factors "land, labour, liquidity and laws"
Already announced: Finance Ministry on March 26₹1.7 lakh crore Support for the poor: Cooking gas, free foodgrains, medical insurance for frontline workers etc.
Already announced: RBI on March 27₹5.7 lakh crore Liquidity: Cut in both repo rate, reverse repo rate, cash reserve ratio, moratorium on loan repayments etc.
Already announced: RBI on April 201.5 lakh crore
Remaining ₹11.1 lakh croreLiquidity done - land, labour and other legal reforms are likely


“CII recommends the government to announce an immediate stimulus package of ₹15 lakh crore, which translates into 7.5% of GDP,” Vikram Kirloskar, President, Confederation of Indian Industry (CII) had said on May 9. On the face of it, Modi’s declaration may seem better than expected but it really is not.

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It is also not possible for a developing country like India to spend its way out of a crisis. While Modi has announced a fresh wave of stimulus, it isn’t clear where it will find its funds from. The government already declared that its market borrowing this year will be higher by 50%, compared to the budget approved by the Parliament, at ₹12 lakh crore.

It will need more money than that to foot the stimulus bill. More borrowing by the government eventually leads to the weakening of rupee, which means the money that people have loses value, and that in turn increases inflation. Stimulus is a tricky game.

SEE ALSO:
India will see multiple waves of COVID-19 infections every few months — but that's not a reason to panic

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