Lockdown extended: But where are the big bang fiscal stimulus measures?

Radhika Merwin | Updated on April 14, 2020

BL Research Bureau

In a bid to curb the spread of Covid-19, Prime Minister Narendra Modi extended the ongoing lockdown till May 3. While the move was imperative to save lives, taking stock of the massive impact of the extended lockdown on jobs and livelihoods is equally critical. More importantly, the Centre will have to announce big bang fiscal measures soon, to address the fallout of the virus-induced lockdown that is costing the economy dearly.

The Centre had last announced a ₹1.7-lakh crore stimulus package under Pradhan Mantri Gareeb Kalyan Scheme on March 26. Not only was the fiscal package grossly inadequate to tackle the crisis, but many of the measures such as the wage increase of ₹20 per day under MGNREGA (already notified by the Ministry of Rural Development, earlier on March 23) and the frontloading of payment (of ₹2,000) under the existing PM Kisan Yojana, were already part of the Budget or routine annual exercise, and hence, it did not offer any specific additional relief to the poor.


A look at the updated policy tracker by IMF as on April 10, highlights the extent to which our policy measures continue to fall short of the fiscal packages announced by several governments worldover.

Inadequate measures

Firstly, the ₹1.7-lakh crore of stimulus package that the Indian government has announced so far amounts to just 0.8 per of FY20 GDP (earlier estimated GDP). But if we exclude the ₹45,000-odd crore benefit under PM Kisan and MGNREGA, then the stimulus package is just 0.6 per cent of GDP.

The SBI Ecowrap report states that only ₹73,000 crore of the ₹1.7-lakh crore is new, while the rest is part of the Budget. Going by that number, the Centre’s fiscal package to tackle Covid-19 so far, is just 0.4 per cent of GDP.

Governments across most other countries have announced way larger stimulus packages constituting up to 4-10 per cent of GDP! What’s more, many governments have been announcing a series of packages over the past two months, scaling up the quantum of packages substantially to tackle the evolving crisis. More importantly, the measures announced across most countries seek to address the urgent cash flow needs of small businesses, low-income households, and income support to informal and unemployed workers. The Indian government’s measures so far have failed to address the needs of small businesses and tackle the issue of job losses, which will only get accentuated with the extension of the lockdown.

The total cost of lockdown which was pegged earlier at around ₹8-lakh crore, is likely to be revised sharply upwards with the extension of the lockdown. It would appear that the Centre will have to announce a much bigger package than the earlier estimated ₹3-4-lakh crore by various economists to address the needs of the vulnerable and affected segments of the economy.

What others have done

In case of Indonesia, which has announced about 3,200 confirmed Covid-19 cases as of April 9, the government, in addition to its first two fiscal packages that amounted to 0.2 per cent of GDP, announced a major package on March 31 amount to 2.6 per cent of GDP. The stimulus package includes increased benefits of existing social assistance schemes to low-income households and expanded unemployment benefits (including for workers in the informal sector). It also includes credit guarantees for the private sector.

Australia has announced three economic stimulus packages totalling 9.7 per cent of GDP through FY2023-24, the majority of which is to be executed in FY2019-20 and FY2020-21. Measures include sizable wage subsidies (6.7 per cent of GDP), income support to households, and cash flow support to businesses, among others.

Belgium which has seen 24,893 confirmed cases as of April 9, has announced a fiscal package worth 2.5 per cent of GDP, which include liquidity measures, and over 11 per cent of GDP in the form of guarantees for new bank loans to companies and the self-employed.

Brazil has announced a series of fiscal measures adding up to 6.5 per cent of GDP. The fiscal measures include temporary income support to vulnerable households (cash transfers to informal and unemployed workers) and employment support (partial compensation to workers who have been temporarily suspended or have a cut in working hours, as well as temporary tax-breaks and credit lines for firms that preserve employment).

France has announced a package of more than 4 per cent of GDP.

In Germany, in addition to running down accumulated reserves, the federal government adopted a supplementary budget of 4.9 per cent of GDP, which includes expanded access to short-term work (Kurzarbeit) subsidy to preserve jobs and workers’ incomes, easier access to basic income support for the self-employed, and grants to small business owners and the self-employed.

In Japan, on April 7, the government, adopted the Emergency Economic Package against Covid-19 totalling 20 per cent of GDP, aimed at protecting employment and businesses (15.1 per cent of GDP), among other objectives.

In Malaysia, a first fiscal stimulus package worth 0.4 per cent of GDP was announced on February 27, a second of 1.7 per cent of GDP on March 27, and a third package of 0.7 per cent of GDP, including grants for micro SMEs and scaled-up wage subsidies.

In Singapore, the authorities have announced three packages amounting to a total stimulus of 12.2 per cent of GDP, which include cash payouts to all Singaporeans, additional payments for lower-income individuals and the unemployed, and additional support for industries directly affected and the self-employed.

In the US, the $2.3 trillion (around 11 per cent of GDP) Coronavirus Aid, Relief and Economy Security Act (CARES Act), includes $250 billion to expand unemployment benefits, $24 billion to provide food safety net for the most vulnerable, $510 billion to provide loans, guarantees, and backstopping Federal Reserve, and $359 billion for small business loans and guarantees to help small businesses that retain workers.

Published on April 14, 2020

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