The total stimulus package of the Modi government and Reserve Bank of India (RBI) added up to a massive Rs 30 lakh crore akin to 15% of India’s GDP last year. Taking that process forward, on June 28, 2021, the government announced a fresh stimulus package of Rs 6.29 lakh crore. While GDP growth in the fourth quarter of 2020-21 (FY21) was 1.6%, with GVA (Gross Value Added) growth of 3.7%, the big positive surprises came from industry which grew by 6.9% and construction by a solid 14.5% year-on-year (YoY). Is a V-shaped recovery in the making or will it be a K-shaped recovery? Is the most asked question these days. In a K-shaped recovery, some sectors rebound while some others trail behind, whereas in a V-shaped recovery, there is a sharp upturn in virtually every economic parameter and almost all sectors, without exception, stage a decisive turnaround. Every stimulus acts with a lag of a 9-12 months as it works its way through the economy. The Rs 30 lakh crore bazooka unleashed last year will therefore have a sizeable impact this year. With most states in the “Unlock" mode and with Prime Minister Narendra Modi-led government’s mega vaccination drive gaining huge traction, the Indian economy should start marching ahead swiftly.
Focus on loan guarantees, concessional credit for pandemic-hit sectors and ramping up healthcare infra were the overriding themes of the stimulus announced on June 28. Provision of free food grains to almost 81 crore people every single month from April till November 2021 had already been announced earlier. Even last year, for over eight months in a row, free ration was provided every single month to 81 crore people at a cost of Rs 2.76 lakh crore by the Modi government. The National Export Insurance Account (NEIA) trust has supported 211 projects of Rs 52,860 crore in 52 countries by 63 different Indian Project Exporters till March 31, 2021. Modi government has now decided to extend underwriting support of Rs 33,000 crore for project exports via National Export Insurance Account (NEIA). NEIA Trust promotes Medium and Long Term (MLT) project exports by extending risk covers and giving covers to buyer’s credit that is given by EXIM (Export and Import) Bank to less creditworthy borrowers.
In addition, Rs 88,000 crore boost will be provided for export insurance cover. Export Credit Guarantee Corporation (ECGC) promotes exports by providing credit insurance services. It supports around 30% of India’s merchandise exports. The Central government will now infuse equity in ECGC over next five years to boost export insurance cover by a good Rs 88,000 crore.
Rs 19,041 crore under the latest stimulus package has been allocated to ensure broadband to each village via the BharatNet PPP model. With an eye on boosting growth and employment as well as to provide relief to Covid-affected sectors, Central government announced an expansion in the corpus of the existing and highly successful Emergency Credit Line Guarantee Scheme (ECLGS), where loans are given to MSMEs, small borrowers and other entities without collateral by Rs 1.5 lakh crore, taking total size of the scheme to Rs 4.5 lakh crore. A new Rs 7,500 crore scheme to guarantee loans up to Rs 1.25 lakh to small borrowers through micro-finance institutions, was also announced.
The highlight of the June 28 stimulus package was a fresh loan guarantee facility of Rs 1.1 lakh crore, of which Rs 50,000 crore is earmarked for healthcare investments, largely in non-metropolitan areas. The balance Rs 60,000 crore is earmarked for other sectors, including a plan to support over 11,000 registered tourist guides and travel agencies so they can survive the second wave’s adverse effects. Working capital or personal loans will be provided to people in the sector to discharge liabilities and restart businesses affected by Covid. Loans will be provided with a 100% guarantee under the scheme to be administered by the Ministry of Tourism. A maximum loan of Rs 100 crore will be given with a capped interest rate of 7.95% (for healthcare projects) and guarantee provided for three years. Without a guarantee, it would have cost 10%-11%. Interest will be capped at 8.25% for other sectors.
A separate Rs 23,220 crore has also been allocated for public health with a focus on paediatric care, which will also be utilised for increasing ICU beds, oxygen supply and augmenting medical care professionals for the short term by recruiting final year students and interns. Free one-month visas to five lakh tourists, new seed varieties for farmers and additional outlays over next two years to expand broadband to all Gram Panchayats are good moves.
The existing initiative to spur employment, where the government bears EPF contributions for new employees earning less than Rs 15,000 a month for two years, has been extended till March 31, 2022.Setting aside the guarantee schemes and announcements that had already been made earlier, the step up in fiscal outgo within 2021-22 based on fresh announcements is estimated at around Rs 60,000 crore, but these are challenging, pandemic stricken times. And needless to add growth has taken precedence over fiscal deficit concerns and rightfully so. Some experts reckon that an additional burden on 2021-22 Budget from the ‘three direct stimulus initiatives’ of providing free food grains, incremental health spending and rural connectivity would be Rs 1.18 lakh crore or about 0.59% of estimated GDP for 2021-22.
Focus on stimulating credit offtake growth through interest rate concessions for priority sectors is also borne out by decision to keep repurchase rate (Repo) rate at a historic low of 4%, with 2.5% reduction in Repo rate happening between 2019 and 2020.Of total stimulus amount of Rs 6.29 lakh crore, Rs 2.6 lakh crore is by way of credit guarantee schemes so the impact on the fiscal deficit will be limited but at the same time, these schemes will create a virtuous cycle of growth, demand and jobs, within the economy. Also, some of these schemes had already been announced at the time of the Budget and therefore, a portion of their cost has already been factored in.
Separately, large electronics’ manufacturers under the Production-Linked Incentive (PLI) scheme have been granted an additional year to meet their production targets. With the second Covid-19 wave now receding, the economy is already beginning to rev up significantly. Goods and services tax (GST) collections have been in excess of Rs 1 lakh crore since October 2020 till May 2021, for eight straight months. While it is true the Composite PMI Index fell to 48.1 in May 2021, from 55.4 in April 2021, the ensuing months should see a sharp uptick in PMI data on the back of Prime Minister Narendra Modi’s mega vaccination drive gaining momentum, which is in turn, leading to unlocking of the economy at a faster pace. India has already vaccinated with the first dose over 345 million or 34.5 crore people, which effectively mean we have vaccinated more than the entire population of USA, with the first dose. Our Covid recovery rate at almost 97% is the highest in the world and fatality rate at 1.1%, is the lowest globally. The weekly and daily positivity rates are below 3%, each. We have already tested more than 40 crore people and counting.
Also, exports grew at a robust 69.4% year-on-year in May 2021, aided by healthy global demand. In April 2021, exports and imports had grown by a massive 197 and 166%, respectively. For June 2021 quarter, exports hit a record $95 billion- the highest ever in a single quarter- in history. For June 2020, the number was $51 billion and for June 2019 quarter, it was $82 billion. More importantly, India recorded a current account surplus (CAS) of 0.9% of GDP in FY21, compared to a current account deficit (CAD) of 0.9% in FY20. A current account deficit of 2% is compatible with a growing economy like India and it is to Modi government’s credit that in the last seven years, India’s CAD has been within the 2% range, whereas under an inept Congress-led UPA, it had touched a precariously high level of 6.8% in 2013.
Bank credit grew 6% in May from a year earlier, picking up from the 5.7% expansion seen in April-end, Central bank data showed. Liquidity conditions stayed comfortable with the banking system in surplus. Industrial production expanded, jumping by 134.4% in April 2021, from a year earlier. Similarly, core sector expanded by 56.1% in April YoY, compared to a YoY growth of 11.4% in March 2021. The manufacturing sector, which constitutes 77.63% of IIP, grew by 25.8% YoY in March 2021, with the mining sector growing by 6.1% in March while power generation increased by a good 22.5%.
Auto sales numbers for June 2021 were released recently, with auto major Maruti Suzuki reporting a stellar 217% jump in sales in May 2021.Tractor giant M&M saw tractor sales nearly doubling, while Ashok Leyland saw 102% growth in June sales, compared to May. Tata Motors saw a 59% growth in June sales, Bajaj Auto a 27% jump and Escorts a 95% rise in June this year compared to the preceding month. Auto sales are a lead indicator of which way the wind is blowing in terms of economic momentum. Indeed, the solid sales numbers in June endorse the ongoing economic traction. A pay-out of Rs 1.35 lakh crore via PM-Kisan, Rs 90,000 crore via the PM Fasal Bima Yojana, a 140% hike in fertilizer subsidy from Rs 500 per bag to Rs 1,200 per bag, a hefty MSP pay-out for wheat of over Rs 81,000 crore by the Modi government in the current Rabi season, paddy procurement of Rs 805 lakh metric tonnes in 2020-21 (FY21) and a host of related measures, have added heft to India’s agrarian sector, one of the mainstays of the Indian economy.
Clearly, India’s agrarian sector which grew by a healthy 3.6% even in FY21 despite the pandemic continues to surge ahead, which bodes well for rural demand. For instance, till June 27,2021, 432.83 lakh tonnes of wheat have been procured in current Rabi marketing season, as against 386.83 lakh tonnes in the corresponding period of the previous year. With record food grain production of over 303 million tonnes in FY21 and record forex reserves at $609 billion, things are looking up. Foreign Direct Investment (FDI) into India saw a robust growth of 27% YoY at $64 billion in 2020, when global FDI actually plunged by a sharp 35%, indicating the fact that the structural reforms unleashed by PM Modi last year during the pandemic are steadfastly bearing results. India continues to be a preferred, global investment destination. A V-shaped recovery is clearly and surely taking shape with Moody’s and India Ratings projecting a 9.3% and 9.6% GDP growth respectively for India in FY22, amongst the highest growth rates globally. Last May, Prime Minister Narendra Modi said, “A virus has ravaged the world, we have never seen or heard a crisis like this. The only way for India to triumph over the crisis was to strengthen our resolve so that our resolve is even greater than this crisis.” And to PM Modi’s credit, the combined resolve of 1.38 billion Indians along with the dynamic leadership of the government of the day has held us in good stead as we continue to march ahead in our fight against a pandemic that has tested the might of every nation worldwide without exception.
Sanju Verma is an Economist, National Spokesperson of the BJP and Bestselling Author of “Truth & Dare -The Modi Dynamic"
Views expressed are personal