Corona virus had an impact on all the countries around the world and to make the economy survive, every country had announced some portion of their GDP as stimulus package to fight against corona virus. May 12th 2020, PM of India, Mr. Narendra Modi gave a 20 minute speech in which he announced a 20 lakh crore stimulus package to fight against corona virus. Details of the package were given out by the Finance Minister
RBI is independent of the government. It controls the monetary policies whereas the fiscal policies are regulated by the central government. When we consider the packages announced by different countries, only fiscal packages are considered. 20 lakh crore package announced by the Indian government consist of 8 lakh crore liquidity infusion (by Reserve bank of India known as the monetary package). Indian Government has combined the fiscal package and monetary package and has depicted that the entire package is given out by the government only.
What is liquidity Infusion? The 8 lakh crore by the RBI will come under RBI’s reserves. The reserves of RBI is not used, so RBI will liquidate the reserves and give out money in the economy so that demand will be stablised in economy. RBI has cut Repo rate by 100 bits and the 8 lakh crore will be given out in the form of loans which should be repaid by the public in due course of time. But at the end point there will be a negligible effect on the public. RBI took some major steps to infuse cash in the economy. RBI reduced the CRR which resulted in 1.37 lakh crore liquidity enhancement. 50 thousand crore was provided for mutual fund to alleviate intensified liquidation pressure.
The remaining 12 lack crore is the fiscal package given out by the central government’s pocket. This 12 lakh crore includes 1.7 lakh crore under Pradhan Mantri Garib Kalyan Package announced earlier by the government. There are many other things included in the package which were announced by the government earlier. PMMSY scheme was announced in the union budget of 2019 is included in the package. This package also includes the money of taxpayers, like 25% reduction in TDS (here the government isn’t giving their money. Taxpayers are given their money back and is counted in the package). EPF is been reduced from 12% to 10% for next 3 months, here we are borrowing our own money from future to settle our current requirements. TRULY AN ATHMANIRBHAR PACKAGE.
MSME’s are being allotted 3 lakh crore collateral free loans, this money isn’t given out, the companies have to replay the amount with interest. 90 thousand crore are been allotted to power distribution companies as a loan, and is expected that this companies will pass on the benefits to the consumers.
5000 crore credit facility is given to street vendors. Migrant workers are given free food grains for next two months, which cost around 3500 crore, benefiting 8 crore workers. Farmers are been given a concessional credit of 2 lakh crore, once again it’s a loan given at low interest rate.
The Government have taken some major privatization reforms for coal, defense, power distribution and space sectors. The implementation will show the results for this major steps.
The package is mostly towards giving out loans and credit facilities at lower rate. As per some economist actually fiscal package is between 1.5 lakh crore to 2.7 lakh crore which is 1% to 1.5% of our GDP. Barclays has estimated this actual fiscal packing is around 1.5 lakh crore. HSBC has an estimation of package to 1% of India’s GDP, not 10%.
The actual fiscal layout is below
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Written by- Shavin Bohara
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