Prime Minister Modi made a bold announcement of fiscal stimulus aggregating Rs. 20 lakh crore to fight the impact of coronavirus on the Indian economy. This amount is approximately 10% of GDP and the fifth-largest stimulus announced globally.
Govt has already announced a few steps earlier. Yesterday, Finance Minister made significant announcements, focused largely on Medium, Small and Micro Enterprises (MSME), where the MSMEs will have collateral-free loans available with the one-year moratorium. The MSMEs sector contributes about 30% of the GDP, as well as is a source of employment for crores of people. Other steps were for Power distribution companies and real estate. Relaxations also provided in EPF and TDS rules, giving more money in the hands of vendors and employees.
Another significant announcement was only local tenders for up to Rs. 200 crore, in line with Prime Minister’s drive to become ‘Atma Nirbhar’.
The focus of all the steps is to ease the liquidity crunch in the economy and generate demand as lockdown restrictions are eased gradually. Demand generation is important, not only to ensure the economy comes back on track but also to generate revenues for the government through tax collections.
It seems that the government is determined to take bold steps for economic revival. In that sense, the current pandemic may turn out to be a blessing in disguise.
All measures will also benefit the mutual fund investors as debt mutual funds were under redemption pressure for the last month. Now special liquidity has been announced by the government so that such papers that have low liquidity can also be purchased.
There will be more announcements over the next 3-4 days. We will keep you updated.