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Will the fresh Covid stimulus package boost the Indian economy? Here’s what economists say

Finance Minister Nirmala Sitharaman on Monday announced several financial measures to boost the economy that has been battered by the Covid-19 pandemic. In total, a stimulus package worth Rs 6.3 lakh crore was announced by the finance minister yesterday.


The announcements are likely to help several Covid-affected sectors, businesses and even individuals.


“Loans will be given to the smallest borrowers by micro-finance institutions. A maximum of Rs 1.25 lakh will be lent. The focus is on new lending and not on repayment of old loans,” Sitharaman said.



Sitharaman also said the interest rate applicable under the new credit guarantee scheme will be two per cent below the Reserve Bank of India’s (RBI) prescribed rate, with a loan duration of three years.


WHAT EXPERTS FEEL ABOUT STIMULUS PACKAGE


Industry leaders and economists are not fully convinced that the fresh economic relief measures announced by the finance minister would help in significantly boosting the Covid-battered economy. They say the new loan guarantees and higher cap for the Emergency Credit Line Guarantee Scheme (ECLGS) will provide temporary relief but will fall short of booting economic growth over a longer period.


The latest economic relief package announced yesterday — like all the earlier relief packages — lacks direct measures. India’s relief packages have differed significantly from the ones announced by other major economies, which offered huge financial aid to households, businesses and people who lost jobs.


India, on the other hand, has relied on pumping funds into infrastructure and state-guaranteed loans since the last year. The only direct relief has come in form of free food grain distribution, while all other measures have been heavily focused on low-cost lending.


Such lending is likely to help businesses recover temporarily, but it will not guarantee recovery in the long run.


DIRECT RELIEF MEASURES NECESSARY


Madhavi Arora, lead economist, Emkay Global, told news agency Reuters that most of the financial support is still “below the line” and in the form of loan guarantees, and not direct stimulus.


ICRA chief economist Aditi Nayar said the new measures would have an impact of around Rs 0.6 trillion (Rs 60,000 crore) on government finances, and the success of announcements would depend on offtake or actual spending.


Many economists are stressing the need for direct stimulus like cash transfers to poorer households that have suffered during the pandemic. People from low-income families are literally spending more than they earn, given the elevated prices of essential items and fuel.


Another point that experts highlight is that a scheme allowing small businesses to borrow money would be of no use if consumer sentiment and demand remain subdued over a longer period.


It is, therefore, essential to first announce direct measures aimed at reviving consumer confidence and solving the demand crisis.

 

Credit: India Today | 29.06.2021

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