Modi’s stimulus package so far is all about liquidity, Indian officials say

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Prime Minister Narendra Modi’s $266 billion economic stimulus programme to deal with the fallout from the coronavirus pandemic has been all about liquidity measures, with negligible extra budget spending, according to government officials.

The government has announced a variety of steps for small businesses, street vendors, farmers and poor migrants, but they have largely been either credit guarantee schemes or new fund creations to be shouldered by banks and financial institutions.

A series of measures announced on Friday aimed at helping farmers weather the coronavirus storm, with the biggest being a $13 billion agriculture infrastructure fund. That will be anchored by state-run National Bank for Agriculture and Rural Development (NABARD), with no extra spending by the government.

The government will also amend the Essential Commodities Act to ease restrictions on the trade of farm products, finance minister Nirmala Sitharaman told a news conference.

But of everything she announced on Friday, the government will spend only 10 billion rupees to 20 billion rupees ($132 to $264 million) in addition to what has already been budgeted, a government official, who did not want to be named, told Reuters.

Total expenditure from announcements made in the last three days would not be more than 920 billion rupees ($12.13 billion), a second official said. The government is due to announce more measures over the weekend.

The government is limiting fiscal spending due to concerns that excess spending could trigger a sovereign rating downgrade, government officials said.

Fitch and Standard & Poor’s both have India pegged at an investment grade rating that is one notch above a junk rating, while Moody’s Investors Service is the only major rating agency that has India‘s rating two notches above junk.

Modi had said on May 12 the government would spend 20 trillion rupees in fiscal and monetary measures to support an economy battered by a weeks-long coronavirus lockdown, and markets jumped the following day.

But markets have been subdued since Sitharaman detailed the relatively minimal sums being spent above what is already in the budget for this fiscal year.

“We do not foresee any major immediate benefits of the measures announced today … The impact on equity markets of today’s announcements is likely to be limited,” B Gopkumar, CEO and managing director of Axis Securities, said of Friday’s measures.

According to Jefferies, the Reserve Bank of India has taken 8 trillion rupees of measures already, which is included as a part of the total package being announced.

Earlier this week, Sitharaman unveiled plans to provide new credit lines by offering bank guarantees on more than $60 billion of loans to small businesses, so-called shadow banks and power companies.

Since April, the government has spent 100 billion rupees to offer work to almost 23 million unemployed people in rural areas under the ongoing rural job guarantee programme, Sitharaman added.

On Thursday, the government said farm loans amounting to 300 billion rupees would be provided as additional emergency working capital to the farmers through NABARD.

The government has also announced free food grain for about 80 million migrant workers for the next two months, and plans to extend an existing scheme for affordable housing to rented housing for migrant workers.

Under lockdown since late March, India has reported about 82,000 confirmed cases of COVID-19 among its 1.3 billion population, with more than 2,600 deaths.