Govt’s stimulus package on anvil

NEW DELHI: A comprehensive package of policy reforms, financial incentives and monetary measures is in the works to re-energise the economy by giving more fiscal space to the states, accelerating public works, easing the availability of credit and putting more cash in the hands of the people to generate demand, three people aware of the plan said.

The package is likely as soon as this week, they said, requesting anonymity and added restarting the economy, buffeted by the coronavirus crisis and the consequent lockdown, will require special efforts by all stakeholders, including the government and industry. “The PM will take a final call based on feedbacks from states and key ministers and top bureaucrats,” said one with direct knowledge of the matter.

An economic package has been in the works since late March. The expectation was that the government would announce it in early April. The third phase of the lockdown expires on May 17 and is expected to give greater freedom to economic and business activity.

The pandemic spread to the Indian economy at a time when it was vulnerable, having been hit by the downturn in household spending and private investment plus a credit crunch. The International Monetary Fund (IMF) has predicted that growth in Asia’s third largest economy would slow to 1.9% in fiscal 2020-21, the slowest in three decades. This month, credit assessor Moody’s Investors Service forecast zero growth for India in the year.

The people cited above outlined the broad contours of the draft stimulus package. The Centre is in talks with states to relax provisions of the Fiscal Responsibility and Budget Management (FRBM) Act so that the latter can borrow money to finance the fight against Covid-19. But, the exemption from the FRBM Act may not be unconditional. States will also have to commit to wide-ranging reforms in areas like labour regulations, agricultural marketing, urban development and power distribution, the second person said. The Centre on Friday raised its own market borrowing estimate for 2020-21 to ₹12 lakh crore from ₹7.80 lakh crore estimated earlier to make up for an expected shortfall in revenues.