Lockdown 4.0: As India extends nationwide lockdown, economists expect Modi govt to spend more to revive the economy

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Published: May 18, 2020 11:12:38 AM

India’s government extended its nationwide lockdown until May 31, while further easing restrictions in certain sectors to boost economic activity, as coronavirus cases escalate across the country.

Lockdown 4.0, nationwide lockdown, NSE Nifty 50 Index, GDP, Jefferies Financial Group Inc, fiscal deficit, indian economy, RBI rate cuts“The net fiscal impact of the economic package is estimated at ~1% of GDP. The combined fiscal deficit is estimated at 10.5-11% of GDP for FY21.”

Equity strategists and economists expect India’s government will have to spend more to revive the economy as steps so far aren’t sufficient with investors’ focus shifting to worsening macro indicators. India’s government extended its nationwide lockdown until May 31, while further easing restrictions in certain sectors to boost economic activity, as coronavirus cases escalate across the country.

A $265 billion virus rescue package is equivalent to 10% of India’s gross domestic product, but some economists estimate the additional government spending is only about 1% of GDP. Infections are surging across the nation of 1.3 billion people, with more than 95,698 infections, including 3,025 deaths, according to data from Johns Hopkins University.

Equity futures on India’s NSE Nifty 50 Index traded in Singapore dropped 0.2% Monday, signaling local stocks may extend declines after recording two straight week of losses.

Also read| Check Coronavirus latest updates here:

Here’s what equity analysts and economists are saying about India’s stimulus:

—Mahesh Nandurkar and Abhinav Sinha, equity analysts at Jefferies Financial Group Inc.:

* “The net fiscal impact of the economic package is estimated at ~1% of GDP. The combined fiscal deficit is estimated at 10.5-11% of GDP for FY21.”

* “The key excitement will be how the current crisis enables structural positives, with the focus on ease of doing business, e-Governance, labor & power distribution reforms, and an increased focus on privatisation.“

* “With fiscal news now behind us, the market focus should return to earnings and economic indicators.”

—Kaushik Das, India chief economist at Deutsche Bank AG:

* “1% of GDP worth additional spending is not sufficient to support the ongoing destruction in domestic demand, and more direct fiscal support will be required through the course of the year to support growth.”

* “We anticipate 0.8-1.0% of GDP in additional expenditure to be announced during the course of the year.”

* “Recapitalisation of public sector banks may become necessary, in our view, as NPA’s rise in the near future, which can potentially add to future fiscal deficit and public debt.”

—Kapil Gupta, an economist at Edelweiss Financial Services Ltd.:

* “The package is underwhelming on ‘here and now’ demand stimulus.”

“A more rigorous and timely demand-side response is essential, fully supported by RBI’s rate cuts/OMOs. Given depressed demand conditions, we believe fiscal activism will serve the cause of growth, jobs, price stability and macroeconomic stability better than fiscal conservatism.”

* Continues to be mostly overweight companies that have good balance sheets & ability to gain share

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