$35b fresh stimulus as India faces recession

mumbai — India’s government has announced a $35.14 billion stimulus package to support the manufacturing sector and create jobs after the central bank said the country was set to enter a recession with estimates of another quarterly contraction.

India — Asia’s third-largest economy and home to 1.3 billion people — has seen its economy badly hit by the coronavirus pandemic, with growth shrinking by a record 23.9 per cent between April and June.

“India has entered a technical recession in the first half of 2020-21 for the first time in its history,” the Reserve Bank of India said.

The economy was estimated to contract by 8.6 per cent in the quarter ending September, resulting in a “technical recession” which occurs with two consecutive quarters of negative growth, the RBI said in its report released late on Wednesday.

The International Monetary Fund said last month that India’s economy would contract by 10.3 per cent for the year.

But Finance Minister Nirmala Sitharaman said on Thursday the economy was now recovering strongly, pointing to global ratings agency Moody’s revision of India’s calendar year contraction to -8.9 per cent from its previous -9.6 per cent estimate.

“(It is) indicative of corrections happening in a positive direction,” she told reporters in New Delhi.

The Reserve Bank also added that the “contraction is ebbing with gradual normalisation in activities and expected to be short-lived”.

The official GDP figures for July-September will be published on November 27.

Even before Prime Minister Narendra Modi announced a strict lockdown in late March, India’s economy was already

sluggish — weighed down by record unemployment and a flurry of bad loans that made banks reluctant to lend.

Sitharaman announced some $35.14 billion in fresh measures to support the manufacturing sector and create jobs. They include incentives to produce goods and services locally, as well as benefits for foreign firms that invest in Indian firms.

Sitharaman said the package includes $121 million for development of a Covid-19 vaccine by the government’s biotechnology department. They come on top of the $266 billion package announced by Prime Minister Narendra Modi in May to revive the stuttering economy.

RBI economists, however, warned that households were still facing financial stress. “Stress intensifying among households and corporations that has been delayed but not mitigated, and could spill over into the financial sector,” they wrote in the report.

The report said the contraction is ebbing with gradual normalisation in activities and expected to be short-lived. At a time when global economic activity is besieged by the outbreak of the second wave of Covid-19, incoming data for the month of October 2020 have brightened the near-term outlook for the Indian economy and stirred up consumer and business confidence, it added.

“Since the assessment of the performance of the Indian economy in the first half of 2020-21 that was presented in the Monetary Policy Report of October 2020, several developments point to a window of respite opening up and an unshackling of economic activity from the grip of Covid-19 as the festival season sets in.”

Independent Mumbai-based economist Ashutosh Datar said: “The recession is historically unprecedented because of its magnitude of the fall, so we are looking at a full-year decline of -5 to -10 per cent. —