16 June 2020

An analysis of India’s Fiscal Stimulus Package

On 12th May 2020, the prime minister of India Mr. Narendra Modi announced a ‘Fiscal Stimulus Package’ to provide a boost to the economy and counter the effects of COVID 19. Over the next five days, the finance minister Mrs. Nirmala Sitharaman provided the details and breakup of the much discussed ‘Rs. 20-lakh crore’ package.

Post the announcement, everyone had their take and observation on what was good or bad – almost similar to the annual finance budget! The markets reacted in a certain way. Various businesses and sectors had their own expectations and even demands. Many were even critical of the finance minister. Everyone had larger than life expectations from the government!

It was presented as a Rs. 20 trillion — $265 billion worth of stimulus – equivalent to about 10% of the India’s GDP. However, some economists noted that the actual spending would be much lesser that promised – close to just 1% of the GDP. Many financial analysts also expressed their dissatisfaction over the same.

One reason for this disappointment is – the expectation for a bigger package, of larger spending by the government. But is that a real solution? Shouldn’t government spending be the last resort? We know the effects of government going overboard and spending too much even in a crisis. In fact, Finance Minister Nirmala Sitharaman even mentioned this in her speech that: After the 2008 financial crisis, the government “just opened the floodgates and kept it open for a long time. At the end of the day, you had the 2013 taper tantrum, double-digit inflation and food inflation hitting the roof.”

The indications were clear, the Modi government would not go ahead with popular sentiments or people pleasing. The policy makers had to focus on the problem at hand. Instead of spending money that it doesn’t have the government focused on getting the businesses back on track and provided a framework for recovery.

In-fact, the advisors of Modi government have got it right this time. They addressed the crisis situation by providing what was needed – a plan for stability. There is no short-term solution nor will economic revival happen in one or two quarters. If we think of it there might even be a need for a further stimulus or direct cash spending by the government in the near future. Hence a bigger package at the start itself is also not wise.

The intention of the government was made clear when it dubbed the program as ‘Atmanirbhar Bharat Abhiyaan’. The underlying motive is support businesses and do the handholding. The policies declared range from liquidity support and risk underwriting to collateral-free loans to small businesses and even direct cash transfers.

Isn’t this real help? By such policies the Modi government has keeping the businesses and industries in the forefront and at the same time provided a reassurance. Over time the businesses will pick up, this will derive real growth, more jobs and get the economy slowly back on track. One may access the details of the announcements and measures taken on the Government of India website. Going through the specifics, we can judge the depth of the measures taken and just how well thought the policies are. Justice has been done to what was promised – by focusing on land, labour, liquidity and laws. Support is also provided to sectors like cottage industries, MSMEs, the working class, middle class and industry; not to mention empowering the poor, laborers and migrant workers.

Even after a detailed press conference and announcements over a period of 5 days, there have been various questions as to how the package was called as a Rs. 20 lakhs crore relief and how will the government actually ensure such a massive amount is utilized?

It was clarified that there are The Five pillars of Atmanirbhar Bharat which will focus on:

  1. Economy
  2. Infrastructure
  3. System
  4. Vibrant Demography
  5. Demand

Corresponding to each of the five areas, the detailed plan and measures are as below: (Click on the hyperlink for each phase to get the detailed presentation and note)

The finance minister also gave a break up of how the Rs 20 lakh crore was allocated among the five tranches and the previous schemes as well as the RBI measures:

Sr. No. Scheme Amount (Rs. Crore)
1 Phase-I 5,94,550
2 Phase-II 3,10,000
3 Phase-III 1,50,000
4 Phase-IV and Phase V 48,100
5 Earlier measures including PMGKP 1,92,800
6 RBI Measures (Actual) 8,01,603
  Total 20,97,053


By not going overboard with government spending, the Modi government has placed its trust in businesses and surely provided a way ahead for a ‘Atmanirbhar-bharat’. This is definitely a bold step by a mature government which is here for the long run.

These are indeed tough times for businesses. Coming out of a slowdown and flourishing again is easier said than done. However, companies and management must not forget that the basics still remain the same. With focus on the core strength the company must realigned with the current situation.

Moreover, support functions, role of employees, training, good financial management and proper advice from professionals will go a long way in helping organizations recover.

V. Purohit & Associates, Chartered Accountants firm in Mumbai, provides all types of consulting and start-up and financial services to companies. Feel free to contact us for your requirements.