Markets will cheer Rs 20-trn package, but the devil could be in the detail

This is possibly the first 8pm address of Prime Minister Mr. Narendra Modi to the nation that has brought a cheer to us all. The Prime Minister rightly said that the difficult situation created by the Covid-19 pandemic needs to be converted into an opportunity.

He added that India should be self-reliant with an efficient supply chain. And concluded that 21st Century should rightly belong to us.
 

It’s a good vision statement. However, many of us had identified this pandemic as an opportunity for India since global buyers may look to de-risk their supply chain and India could figure in it prominently if we as a country put our act in place. With this vision statement, the Prime Minister has set the ball rolling.

However, the question is how the Government will ensure the speedy implementation of the vision statement without being diluted due to bureaucracy, leakages, inefficiencies and corruption. We should remember that we are yet to fix the agricultural supply chain since the last fiveyears, amongst others. 

The Rs 20 trillion package is surely more than most of us could have asked for. The markets will definitely give it a thumbs-up, however, like the Union Budget announcements, the devil could be in the details, which we can expect over the next few days. I sincerely hope the Rs 20-trillion is not a mirage or a derived figure, but the real benefits flow directly or indirectly to the various sectors it is meant to be. I would be happy even if the real flow works out to half the promised / announced figure. 
 

The moot question would be how the Government will fund this package. Fiscal deficit would shoot up, but a figure beyond 7 per cent could worry the investors. Divestment may not bring in much cash, unless the markets sustain at higher levels.

Borrowing would be the only option other than printing new money. Part of this package would come from savings from lower oil prices, which is around Rs 3-trillion per annum, assuming our consumption goes back to normal in the next few months and oil prices stay around current levels.

 

The other important indication which the Prime Minister gave is that we may need to learn to live with Covid-19. In pandemics, it’s always a balance between economy and lives. Initially due to lack of public awareness, preparedness, as well as efficiency of the medical infrastructure to cater to the pandemic, a call was taken to save lives through lockdown.

This probably the best decision at that point of time. However, now with economic woes increasing, we have seen a shift in focus and hope we are able to get the economy back on track with the economic package without losing many lives to Covid-19. A pandemic always changes the course of history and this could be the moment of reckoning for India, if we are able to play our cards well.
 

(Ambareesh Baliga is an independent market analyst. Views are his own.)