India’s Rs 20-Lakh-Crore Economic Package ‘Aimless, Generic And Lost Opportunity’, AB Bernstein Says
India focused its rescue package on the rural economy and a “strange end market” like a space program, Bernstein analysts say.
India’s Rs 20-lakh-crore economic package to help bring the battered economy back to its feet after the Covid-19 pandemic, unveiled by Finance Minister Nirmala Sitharaman over the last five days, failed to impress analysts at global research firm AB Bernstein.
“While the package started on important aspects, the need to announce measures that add up to this top down number made the entire package aimless, with several generic announcements which should ideally have been a part of a normal economic agenda,” analysts at AB Bernstein said in a strategy note.
The package failed to make any substantial decisions that would support consumption and promote manufacturing—things that are needed with immediacy to revive the Indian economy, according to Bernstein analysts. Even the broader reforms that have been announced lack “spark”, they said.
Last Tuesday, Prime Minister Narendra Modi announced that India would come out with a Rs 20-lakh-crore economic package, which is equivalent to 10 percent of the nation’s GDP. That was followed by the finance minister’s five briefings in as many days, outlining its details. The last tranche of measures was announced on Sunday.
The package included liquidity measures already announced by the Reserve Bank of India, loan guarantees and increased spending on some areas such as the rural jobs guarantee programme. While the headline number is huge, the actual government spending remains small with the RBI’s earlier measures forming the biggest part.
Even then, Bernstein said some of the sectoral choices in the package were “perplexing”. The focus, the note said, should have been on urban, corporates, consumption, infrastructure and other impacted sectors. Instead, the government focused on the rural economy and a “strange end market” like a space program.
“Rural is in control, as farm incomes are protected (good harvest season and a good start to summer crop sowing). Yet, several measures (in the form of loans) were announced for agri, some of which are already existing programs.”
That said, the analysts lauded a few measures like the fresh credit guarantees for small businesses and extension of the employment guarantee programme and food provisions to migrant workers and poor.
For investors, AB Bernstein said the package was unlikely to move the needle. “Equity markets are likely to be less enthused with the package as it is less likely to support the economy in the near/medium term.”