India Fiscal April 2020

India: Authorities act to soften economic blow from coronavirus pandemic

Prime Minister Modi announced on 14 April that the national lockdown, which was first enforced on 25 March to curb the spread of the coronavirus and severely curtailed the freedom of movement and non-essential business, will be extended until 3 May. However, to mitigate the effects of the lockdown on the economy—the unemployment rate reportedly shot up to nearly 25% in April—state governors will ease restrictions from 20 April, depending on the spread of the virus in their regions. The easing will be applied to designated activities, particularly agricultural activity. Moreover, to support struggling businesses and consumers, the government has announced a range of fiscal policies in recent weeks, and the Reserve Bank of India has loosened monetary policy. Nevertheless, the economic effects of the pandemic will be severe.

Fiscal stimulus worth approximately 1% of GDP has been announced so far by federal and state governments, including cash transfers to lower-income households and an easing of the criteria for receiving unemployment benefits. Measures to ease the tax burden have also been announced, including delaying income tax filing deadlines, while additional resources have been devoted to providing healthcare. Reflecting on the fiscal stimulus taken so far and possible additions to it, Sonal Varma and Aurodeep Nandi of Nomura noted it will likely “fall short” in cushioning the severe blow inflicted by the pandemic.

On the relaxation of the lockdown measures, Prachi Mishra and Andrew Tilton of Goldman Sachs stated: “Our reading of the relaxation rules is that, despite some restrictions being removed, major parts of the economy would remain closed during the lockdown extension phase, and this would continue to weigh on economic activity.” On the economic outlook, they added: “We expect a strong sequential rebound in the second half of the year. In aggregate, India’s policy effort to control the spread of the virus has been significant, and India’s measures remain among the most restrictive across the region.”

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