Growth pangs: Govt weighs fresh stimuli, relief package to soften Covid-19 blow

The RBI had in April (before the full fury of the Covid resurgence) pegged the FY22 growth rate at 10.5%.

The government has initiated discussions on the need for the next round of relief measures to soften the blow of the Covid-19 pandemic, as the severe second wave and near-Pan India lock-down have led to vigourous calls for more succour to lift economic activities.

However, given the limited resources and the fact that the government has already rolled out “massive stimulus” last year and announced more steps in the Budget for FY22, any package this time, if approved, could be “smaller”, an official source said. But it could still be a “meaningful intervention”, he said. “Preliminary discussions have started,” he added.

The Prime Minister’s Office and the finance ministry have kept a close eye on the Covid situation as well as on the requirement of further steps to stimulate growth. “The government hasn’t closed its door on further relief measures. But the necessity, timing and the nature of any such intervention is yet to be decided,” said another source.

Sectors like tourism and aviation, and small and medium businesses that have been hit hard are expected to be among the key beneficiaries.

Last year, the government had announced a Rs 21-lakh-crore relief package initially to offer breather to both individuals as well as businesses. Later, by November 2020, it offered more succour, including Rs 65,000-crore extra fertiliser subsidy in FY21, Rs 18,000 crore for PM Awaas Yojana (Urban) via additional allocation and extra budgetary resources, and its decision to bear 24% EPFO contribution for eligible staff/units for 2 years. Finance minister Nirmala Sitharaman had then said that the total steps taken were worth Rs 29.88 lakh crore (15% of GDP), which include RBI measures worth `12.71 lakh crore.

Currently, the government is closely monitoring the capex programmes, including that of central public sector units, to pump-prime the economy. Other key budgetary provisions, including those on healthcare and infrastructure, are being pursued vigourously too. Spending could be re-prioritised to cater to increased requirement from the healthcare sector in light of the second wave.

Any further package could again be accompanied with more reform measures to boost the economy, the sources said. From tourism, hospitality to MSMEs, several sectors have sought relief from the government to beat the Covid impact. Even individuals have approached the courts, seeking another loan moratorium.

Speaking at an online discussion organised by The Indian Express and Financial Times in April, Sitharaman had said she was “monitoring the economy in a very detailed fashion on an everyday basis”.

The second Covid wave has hit industrialised states like Maharashtra, Tamil Nadu, Karnataka and Delhi, among others, and forced them to announce local lockdowns to contain infections. This has disrupted economic activities there.

While daily fresh Covid cases dropped below two lakh on Monday for the first time since April 14, the total cases remained as high as 2.69 crore. As many as 3,511 patients died in the past 24 hours, with states scrambling to get vaccines.

The severity of the second wave has prompted many agencies to trim their growth forecasts for India. Recently, global rating agency Moody’s on Tuesday slashed its India growth forecast for FY22 to 9.3% from 13.7%. S&P, too, expects growth slipping to 9.8% under a “moderate” scenario” from 11% it forecast in March. Barclays on Monday cut its India growth forecast by 80 basis points to 9.2% for FY22.

In its latest monthly bulletin last week, the Reserve Bank of India (RBI) said the biggest toll of the current second wave is in terms of a demand shock (loss of mobility, discretionary spending and employment, besides inventory accumulation), although aggregate supply is less impacted. The RBI had in April (before the full fury of the Covid resurgence) pegged the FY22 growth rate at 10.5%.