Indian government weighs economic stimulus as the country sees record surge in Covid-19 cases

The Indian government may announce a stimulus package to ensure that the resurgence of Covid-19 does not derail the economic recovery that was underway before a surge in cases prompted states to impose restrictions.

The package could provide relief to the poor if the second wave of the pandemic disrupts their livelihood, three people familiar with the thinking in the government said on Wednesday.

Indian government announced an economic stimulus-cum-relief package between March 26 and May 17 last year to jump-start recovery after strict Covid-19 curbs severely hit business activity. The Centre pegged the magnitude of the package at ₹20.97 lakh crore.

The Union finance ministry, the Reserve Bank of India (RBI) and other key departments are in touch with stakeholders over the need for and timing for a stimulus, the people quoted above said.

While a nationwide hard lockdown has been ruled out by the Prime Minister, the government will respond to any requirement of the industry, particularly micro, small and medium enterprises (MSMEs), so that economic activities and livelihoods are not disrupted, they said on condition of anonymity.

The Centre may also expand its vaccination drive so that the severity and the spread of Covid-19 can be contained, one of the three persons said. "Vaccination of industrial workers irrespective of their age is under consideration, depending on availability of vaccines," he added.

On Tuesday, India's drugs regulator approved Sputnik V vaccine, and also said any vaccines approved in the US, UK, Japan, or the EU, or listed by the WHO, would not need bridging studies before grant of an emergency use authorisation in India. The move is expected to significantly enhance vaccine availability in coming months.

"The finance ministry is taking specific inputs from other ministries and industry representatives. Based on the inputs, it may come out with a series of announcements to provide relief to the affected sectors," a second person said.

The finance ministry did not respond to e-mailed queries.

Finance minister Nirmala Sitharaman on Tuesday said the government will control the second wave of the pandemic through its test-track-treat-vaccinate strategy, Covid-19-appropriate behaviour and local-level containment without going in for hard and widespread lockdowns. "We don't want to totally arrest the economy," she said.

A 68-day hard lockdown last year, which lasted through two months of the first quarter, saw the Indian economy contract by 24.4% year-on-year in the June quarter.

A third person said the impact of the second wave on the gross domestic product (GDP) may not be as severe as the first wave. "This time, the government is prepared. The Budget kept all such factors in mind. Even the RBI projected 10.5% GDP growth in 2021-22 while keeping an accommodative stance," he said.

DK Srivastava, chief policy adviser of EY India, however, said: "This second wave in India has appeared with a vengeance. Its impact on the economy is likely to be very severe."

"Although it is a little early to make a detailed assessment of the economic impact of second wave of Covid-19, various indicators available as of date point towards high economic risk. The latest Google Mobility Report shows that mobility across places of retail and recreation has once again noted a drop between mid-February 14 and end of March 2021," said Dilip Chenoy, secretary general at Ficci.

Experts say that economic risk mitigation would depend on the government's vaccination strategy. "In fact, not only vaccination, but the containment -- testing/tracking and isolating -- and treatment strategies should also continue on a war footing," Chenoy said.

Srivastava said the second wave would affect the first quarter of current financial year depending on the government's vaccination strategy. "At present, the expectation is that as the coverage of the vaccinated population increases, the incidence of Covid can be brought under control, perhaps within the first quarter of FY22," he said.

The industry expects that the second wave will affect the growth, hence the government must provide sector-specific stimulus. Sanjay Aggarwal, president at PHD Chamber of Commerce and Industry said: "As MSME sector has been still in the recovering phase from the daunting impact of first wave of pandemic Covid-19, there is a need for special stimulus for this sector... support to startups is seriously required... Also, sectors severely affected by the first wave of pandemic, such as hospitality, tourism, contact services, etc, should also be considered for continued government support and facilitation measures."