The much-awaited stimulus package to revive economy amid COVID-19 conditions was announced by PM of India, Mr. Narendra Modi on 12th May. The Rs 20 lakh crore package is significantly higher than street expectations which has caused the market to cheer for it. After experiencing slump for several months, Dalal street predicts big rally on stocks post announcement.
The PM named the plan as ‘Atmanirbhar Bharat Abhiyan’, and said that he expected it is expected to play a significant role in reviving the economy. The government is currently planning a recovery roadmap to push growth when India comes out of extended lockdown period.
In his speech he said “I announce a special economic package today. This will play an important role in the ‘Atmanirbhar Bharat Abhiyan’.”
It is expected that when the 3rd largest economy in Asia announces it’s biggest ever monetary relief package in recent history it will create quite a few ripples in market. Financial experts welcome the move saying it is timely and essential to put economy back on track after the pandemic induced slowdown. It is expected to be directed towards the sectors that are hard hit by the lockdown like aviation, hospitality, travel and tourism, and many others. Witout a recovery plan these sectors will suffer great loss.
What is most striking about the deal is it has exceeded everyone’s expectation. It has surpassed all the other relief packages announced so far shows the government’s resolve in reviving the economy with long term effect.
Key highlights from the package announced
- The 20 lakh crore package is 10 percent of country’s GDP.
- PM emphasises on strengthing five pillars – economy, infrastructure, technology-driven system, vibrant demography, and demand in revival process.
- It includes Rs 1.7 lakh crore stimulus package previously announced by Finance Minister Nirmala Sitharaman.
- It also includes Rs 5.2 lakh crore liquidity packages that were announced by RBI in March during 1stphase of lockdown to give relief on EMI and loan repayment.
- Previous relief packages were merely 2.5 percent of GDP. Compared to that this is massive.
- Major reform activities will take place in areas relating to land, labour, liquidity and laws, shows willingness of the government to turn the present crisis into opportunity.
- Benchmark indices improved by 5 per cent as an effcet of Modi’s new deal on share market,.
- Collateral free automatic loans announced for MSME’s to revive the sector and ensure job security.
The fear of increasing fiscal deficit
On the flip side, it also runs a high risk of widening the fiscal gap. The government needs to draw a solid plan to compensate expenditure with revenue to keep fiscal deficit under control. It seems like a job of walking on a tight rope but without a stimulus package to push money into the economy from outside there is a huge risk of it sinking into recession.
In summary, the impact of PM’s announcement on stock market will help to improve investor’s confidence and may arrest the freefall. However, investors are likely to wait for more details to come out to tune their expectation before making further speculations.