Modi unveils vision, launches US$266b stimulus package amid pandemic

A policeman fills bottles with drinking water, on May 18, for migrant workers aboard a train departing for Uttar Pradesh state after India’s government eased a nationwide lockdown. (HIMANSHU SHARMA / AFP)

India is committed to globalization and contributing to the world economy even as Prime Minister Narendra Modi launches his vision of a self-reliant country capable of making world-class brands.

Finance Minister Nirmala Sitharaman made the pledge after Modi mapped out the country’s roadmap to economic recovery on the back of a US$266 billion stimulus package unveiled last week. The huge injection, a sum that translates into 10 percent of India’s GDP, is designed to save an economy afflicted with coronavirus and crippled by an uninterrupted lockdown since March 25.

“(Modi’s vision) is not about looking inwards or being isolationalist … (but about a) confident India that contributes to the globe.

“The crisis and the challenge is an opportunity to build a self-reliant India,” Sitharaman said.

“It is India’s bridge between localization and globalization,” said Seshadri Chari, an ideologue belonging to the ruling Bharatiya Janata Party, writing in ThePrint, an online publication. He said self-reliance should not mean divorcing international trade. Instead, India will have to engage with the region and the world while strengthening its own domestic industry.

Much of the stimulus money is meant for infusing liquidity and carrying out reforms in key sectors such as infrastructure, manufacturing, aviation, agriculture, public health, education, coal, and ease of doing business. In terms of volume, India’s rescue package can measure up to some of the biggest economies in the world, such as the United States (13 percent of its GDP) and Japan (more than 21 percent of GDP).

India’s economy has been battered in recent weeks with millions of jobs lost almost overnight. Among the worst-hit are the low-paid migrant workers and farmers who constitute the majority of the country’s 1.3 billion population.

Sectors that suffered include hospitality, aviation, tourism, transport, petroleum, and entertainment. The spectre of job loss is looming larger than ever, according to the Centre for Monitoring Indian Economy. About 27 million young people in the 20-30 age group lost jobs in April. 

Mohammed Saqib, director-general of the India China Economic and Cultural Council, said that the package addresses the supply side but it is not focused on the demand side. “To revive the economy there have to be measures to get money in people’s hands,” he said.

More job losses seem imminent, said economist Abhirup Sarkar, who teaches at the Indian Statistical Institute. He added that the government should focus on helping millions of poor people, especially migrant laborers, who are among the worst hit.

He said their pain is threefold: “First they saw their jobs vanish, almost overnight. Second, they have been driven to (constant fear of the) deadly consequences of the virus. And third, they got stranded, far away from homes and families.” This has prompted a mass exodus of people — on foot. “With no transport available, hordes of people headed toward their homes on foot,” said Sarkar.

The stimulus package comprises US$78.2 billion to provide credit lines to small businesses and electricity distribution companies. It also has US$40.8 billion earmarked for supplying free foodgrain to stranded migrant workers for two months, and also providing loans to farmers. 

Sitharaman on May 17 said the stimulus package includes US$105 billion of liquidity measures announced by the Reserve Bank since March. 

Sitharaman has also announced “structural reforms” in eight sectors, including coal, minerals, defense production, airspace management, power distribution companies, the space sector and atomic energy, and also promised easier credit for micro, small and medium enterprises (MSMEs).

Lekha Chakraborty, senior economist at the National Institute of Public Finance and Policy, an autonomous research institute of India’s Ministry of Finance, said that infusing liquidity into these stressed sectors of MSME is crucial.

However, the solution is only partial, she said. Raising consumer demand is key to keeping businesses afloat. Chakraborty said there has to be demand in order for compaines to be interested in taking loans.

Amitendu Palit, a senior research fellow at the Institute of South Asian Studies, National University of Singapore, told China Daily that the stimulus package is largely about creating liquidity for supporting MSMEs. “It is meant more for keeping the enterprises running, rather than enabling them to expand and consolidate.” 

“What I find more important is the utilization of the occasion to announce some major reforms,” he said. “The deregulation of the Essential Commodities Act for allowing farmers to sell directly at open market prices is a long-pending vital reform. So is the effort to de-nationalize commercial coal mining,” said Palit, who worked in India’s Ministry of Finance for a decade.

Palit said that the economic situation is exceptionally difficult because it is uncertain how long the COVID-19 pandemic will last and what will be its impact.