The measure of economic policy uncertainty in India rose to its highest level yet since the Narendra Modi government came to power in its second term.

The index is up 3.6 times its January value of 48.1 to close at 173.3 in May, during the second month of a lockdown that began because of the Covid-19 pandemic. The last time the index was this high was in August 2013 as the country dealt with the so-called taper tantrum. At the time, the American central bank had begun reducing the amount of money it made available for easy borrowing. This program of easy money was called quantitative easing (or QE) and was put in place to cushion the economy from the effects of the global financial crisis. It had led to many investors borrowing at low interest rates in the United States and investing it for higher returns in emerging markets like India. The hint of an end to this policy caused many foreign institutional investors (FIIs) to end this trade, leading to liquidity issues as capital suddenly grew scarce in India and other emerging markets.

“The mere hint by Chairman Bernanke about possibility of an early QE-tapering led to an exodus by the FIIs, especially in the debt segment. The rupee went into a tailspin and depreciated sharply by over 19 per cent, touching a historic low of 68.85 on August 28, 2013. Of course, India’s weak macro-economic fundamentals, especially high current account deficit, that existed then, exacerbated the situation,” said Reserve Bank of India Executive Director G. Mahalingam in a February 2015 speech in Mumbai.

India has sought to deal with the Covid-19 pandemic through a series of economic measures. The Prime Minister Narendra Modi announced a plan earlier in May to provide financial support to various parts of the economy. Questions have been raised about the announced Rs 20 lakh crore package and the amount actually coming from the government. Some have pegged the actual value of the package to be significantly lower than the announcement.