Indias historic $266 billion relief package will leave a lasting global impact

Indias historic $266 billion relief package will leave a lasting global impact

$266 billion is a humungous number, but just how significantly large is it in real life

$266 billion is enough money to connect all villages in India with optical fibre broadband 2.8 times. It's the equivalent of what the Indian government invests in its ambitious infrastructure projects in a year. It's enough money to complete all Indian Railway infrastructure projects for at least 12 years. And it's nearly enough money to cover the entire GDP of Pakistan - which stands at $284 billion in the aftermath of Covid-19, according to World Bank estimates.

But that's the unprecedented stimulus package that Indian Prime Minister Narendra Modi announced on Tuesday night for Covid-19 relief - a package worth 10 per cent of the country's GDP. This is the largest economic relief effort that India has ever seen and will “give a new momentum to India's development journey and put India on the road to self-reliance,” to use the Prime Minister's own words.

Today's announcements by FM @nsitharaman will go a long way in addressing issues faced by businesses, especially MSMEs. The steps announced will boost liquidity, empower the entrepreneurs and strengthen their competitive spirit. #AatmaNirbharBharatAbhiyan

- Narendra Modi (@narendramodi) May 13, 2020

As economic stimulus plans go, India's relief measures are also among the world's largest packages unveiled so far in terms of percentage of GDP. Japan has rolled out stimuli worth around 21% of its GDP and the US around 13%, but China - from where the virus originated - has so far spent less than 4% of its GDP in countering its catastrophic economic impact. Indeed, India's relief package is even bigger than the individual GDPs of Portugal, Greece or Vietnam.

While the contours and granular details of this historic package become clear over the next few days, it's very apparent that the biggest beneficiaries will be the micro, small and medium-scale enterprises (MSMEs), along with the vulnerable rungs of Indian society that were hit the hardest by the devastating impact of the pandemic. A renewed focus on self-reliance and buy local will also bring back the rightful emphasis on the Make in India initiative that has attracted global investors from far and wide.

Here are four ways how:

Huge boost for MSMEs

In announcing the details of PM Modi's vision for Covid-19 relief, Indian Finance Minister Nirmala Sitharaman said in New Delhi on Wednesday that unsecured loans totaling Rs 3 trillion will be offered to as many as 4.5 million small businesses until October 31. "Essentially this is to spur growth and to build a very self-reliant India. It addresses ease of doing business, compliance and due diligence and the intention is also to build local brands,” she said. Since MSMEs form the bedrock of India's $2.7 trillion economy, any measures to stabilize them will also lead to a ripple effect on hundreds of enterprise start-ups funded by non-residents and venture capitals and reassure investors in those sectors with recent FDIs about business viability during this time of global uncertainty.

Government under the able leadership of PM @NarendraModi ji revises the definition of MSMEs to encourage growth. #AatmaNirbharBharatAbhiyan

- Piyush Goyal (@PiyushGoyal) May 13, 2020

Be a partner to local growth

As announced by PM Modi, India's Covid-19 relief package will focus on land, labour, liquidity and laws to revive the economy, along with generating substantial demand. A cornerstone of India's policy in the coming days will be a laser-sharp focus on nurturing local brands and bringing them up to compete at the global level. “From today onwards,all Indians should be vocal about local,” is what the Prime Minister exhorted the nation to follow - and the global Indian diaspora can become a responsible partner in that quest for self-reliance by supporting and investing in the gazillions of available local opportunities, from manufacturing to services and micro industries. The planned integration of the local and global value chain is also where NRIs can leverage their expertise to build capability for such enterprises.

Focus on Make in India

The Prime Minister's invocation of self-reliance brings back the spotlight on the strategic necessity of economic nationalism, and its corresponding benefits. At one level, this is not just invoking India's past glory - for instance, it eschews the faux political narrative about India's internal migrants. More than temporary succor, India's workers need permanent wealth-creation opportunities that don't periodically compel them to become migrants in the first place - and that's only possible with a focus on being “Vocal for Local” and ensure sustainable growth for all. The mantra of self-reliance will now also enable mass market, labour-intensive and traditionally neglected sectors to find their way out of the shadows (think khadi, agro-technology and village start-ups) and these are sectors that the 30-million strong Indian diaspora would find lucrative enough to invest in. The Covid-19 relief package therefore perfectly complements the Make in India initiative and create lots of new investment synergies for the savvy diaspora.

Real estate and tax savings liquidity

At an individual level, investors stand to gain on the liquidity to be released through 25% reduction in the TDS rates, as announced by Finance Minister. The tax savings will put Rs 500 billion cash in the hands of people. Further, for those non-resident Indians who have invested in real estate back home, especially in off-plan properties, the government has advised that registration and completion dates should be extended suo-moto by 6 months for all registered projects that were scheduled to be done on or after March 25, citing Covid-19 as a force majeure. While this might translate into a marginal delay in the scheme of things, such a measure will ensure stability of the real estate market and aim to protect the investment value of real estate projects amid free-falling prices everywhere else. It would also open up new opportunities for those NRIs who might plan to permanently head back to India, to realistically assess new projects and negotiate prices.

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