Pupils wash their hands before class at a high school in Secunderabad, India. Picture: AFP/NOAH SEELAM
Pupils wash their hands before class at a high school in Secunderabad, India. Picture: AFP/NOAH SEELAM

New Delhi — India announced a $22.6bn economic stimulus plan on Thursday that provides direct cash transfers and food security measures, offering relief to millions of poor people hit by a nationwide lockdown triggered by the coronavirus pandemic.

The announcement confirms a Reuters report on Wednesday that the government had agreed on an economic stimulus package of more than $20bn to fight the economic downturn due to Covid-19.

The package was announced two days after Prime Minister Narendra Modi ordered the 21-day lockdown to protect the country’s 1.3-billion people from the coronavirus. This led to supply constraints for essential items and panic buying, leaving the poor and daily labourers most vulnerable.

The government aims to distribute 5kg of wheat or rice for each person free of cost, with a kilogram of pulses for every low-income family, helping to feed about 800-million poor people over the next three months.

It also intends to hand out free cooking-gas cylinders to 83-million poor families; a one-time cash transfer of $13.31 to 30-million senior citizens; and $6.65 a month to about 200-million poor women for the next three months.

“We do not want anyone to remain hungry,” finance minister Nirmala Sitharaman told a news briefing.

The government outlined plans for medical insurance worth 5-million rupees ($66,000) for every front-line health worker, from doctors, nurses and paramedics to those involved in sanitary services.

But some economists said that the plan may not be enough to support the country, and the lockdown could cost the country dearly in terms of economic growth. 

“The fresh announcements related to cash transfers appear to be relatively modest at this stage,” said Aditi Nayar, an economist at ICRA. India’s growth fell to 4.7% in October-December, its lowest in more than six years, and is likely to fall to 2.4% in January-March, Nayar said.

Sitharaman did not provide details on how the programme will be funded in a country that always walks a line in terms of its fiscal deficit. The announcements will be effective from April 1, the beginning of India’s new fiscal year 2020/2021.

Sources told Reuters that the government is likely to increase its 2020/2021 planned borrowing of 7.8-trillion rupees and it has asked its central bank to directly buy part of these bonds, a move not undertaken by the Indian central bank in decades.

The officials, who did not want to be named, also said that the government and Reserve Bank of India (RBI) will announce steps to ease stress for businesses in the coming weeks. The government is likely to defer taxes for some industries, such as aviation, hospitality and small companies, which have been hurt the most by the lockdown, officials said.

The RBI is also likely to ease bad-loan classification norms and allow banks to raise their lending ceiling to help companies.

Reuters

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