The second wave of COVID has battered India’s healthcare system, and dealt an equally severe blow to the nation’s economy. Industries big and small, organised and unorganised, have ben hit hard not only due to the health impact on employees but also because strict shutdowns imposed by states across the country have rendered trade almost impossible.
To address this issue, the Centre is coming up with a stimulus package that will target the sectors that have taken the biggest beating from the pandemic, it has been reported. These include aviation, hospitality, tourism and MSMEs (micro, small and medium enterprises).
The Finance Ministry is considering proposals in this regard, though these are early days yet, said a Bloomberg report. No timeline has been arrived at either, it added.
India said to plan stimulus package to support economic growth, reports Bloomberg. pic.twitter.com/TnPF80Zzlu
— BloombergQuint (@BloombergQuint) May 25, 2021
Last month, Union Finance Minister Nirmala Sitharaman had said her ministry was keeping a careful eye on the economy. She has been holding talks with economists to give shape to the stimulus package, said the Bloomberg report.
Economic red flags
The Centre’s proposed move to bolster the economy comes amid key indicators pointing to India hurtling towards a slump. In the recent past, several rating agencies have downgraded their GDP projections for the country.
“India is in the midst of a resurgence of COVID-19 cases, with the daily case count two times the 2020 peak,” said UBS in a mid-April report. “If the efforts to get the virus under control are successful over the coming weeks, we think recovery should gather steam from Q2 FY22 (July-September) onward.” It went on to revise its real GDP growth forecast for 2021-22 to 10%, against the earlier 11.5%.
Nomura downgraded its GDP projections for 2021-22 to 12.6% from 13.5% earlier, and JP Morgan to 11% from 13%.
The official numbers indicate that the caseload has peaked in most parts of the nation. The calls for oxygen supply and ICU beds have visibly tapered. But from here to being fully rid of the pandemic is a long way, particularly since the vaccination drive is happening in fits and starts. The path to economic recovery is even longer, with more and bigger roadblocks.
Earlier stimulus packages
Hence, a well-thought-out stimulus package may be critical to put the economy back on the track. Some of this was addressed by the Reserve Bank of India on May 5, when Governor Shaktikanta Das announced a slew of measures to ease the pandemic pain.
These included funding support for healthcare entities and patients, liquidity support for small finance banks for on-lending, a loan restructuring facility, easier credit to MSME entrepreneurs, and rationalisation of KYC compliance.
Last year, to address the economic damage caused by the first wave of COVID, the Centre had announced an Atmanirbhar Bharat stimulus package. Under this ₹29.87 lakh crore initiative, it sought to improve ease of doing business for MSMEs, pave the way for greater private sector participation in several critical sectors and enhanced the FDI (foreign direct investment) limit in key segments. There were also numerous other announcements for specific sectors.
Whether the latest package will be along these lines, or give some additional focus to the rural sector — which has taken a far greater hit this year from COVID — will be keenly watched by economists.
The call for a package to kickstart the economy has been growing louder. Last week, Sanjay Aggarwal, President, PHD Chamber of Commerce and Industry, said in a press release: “The second wave of coronavirus has swamped the country at a rapid rate with more severe impact than the previous wave in 2020. At this juncture, the government has to step up with proactive and calibrated measures to mitigate the daunting impact of Coronavirus 2.0 on people, industry, trade and economy, as it did in 2020.”