India on Monday announced INR730 billion ($9.95 billion) measures aimed at stimulating domestic consumption and investment amid the contracting economy caused by the coronavirus pandemic. The package includes INR116 billion ($1.58 billion) allowances for federal government employees to be spent on non-essential goods such as TV and washing machines before March 31, 2021.
The federal government also set aside INR120 billion ($1.64 billion) as interest-free, 50-year loans for states to finance new or ongoing capital projects. It will also spend an additional INR250 billion ($3.41 billion) to build roads, water supply, urban development, and defence infrastructure.
According to Finance Minister Nirmala Sitharaman, the measures are expected to directly or indirectly generate about INR1-trillion ($13.65 billion) demand in the economy where consumption accounts for 60% of GDP. However, the package is also expected to add to the government’s financial burden, with the combined fiscal deficit expected to widen to 10% of GDP.
India’s economy shrank 23.9% in the April-June quarter and is expected to contract 9.5% in the ongoing fiscal year ending in March 2021. The country suffers the world’s second-largest COVID-19 outbreak after the US, reporting 7.12 million infections and 109,150 deaths so far. It imposed a nationwide lockdown in March but has gradually eased restrictions in parts to allow the economy to reopen.
