Time for Economic Stimulus Round 2; impacted sectors must get further relief, says SBI research

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June 29, 2020 4:05 PM

Economists at the State Bank of India have pitched for a second round of economic stimulus, months after Finance Minister Nirmala Sitharaman detailed about Rs 21 lakh crore financial relief package.

The economists also warned that banks now stand at risk of reporting higher non-performing assets (NPAs) after September, once the six-month moratorium on loan repayment ends.

Stating that there is a little link between economic recovery and surge in the equity market, economists at the State Bank of India have pitched for a second round of economic stimulus, months after Finance Minister Nirmala Sitharaman detailed about Rs 21 lakh crore financial relief package. “There is also an apparently weak linkage between buoyant markets and economic recovery that has got only amplified since the global financial crisis, largely reflecting irrational exuberance… We must think of a second round of fiscal support at least for beleaguered sectors,” a report by SBI said on Monday. The economists also warned that banks now stand at risk of reporting higher non-performing assets (NPAs) after September, once the six-month moratorium on loan repayment ends.

After coronavirus hit Indian shores, the markets lost over a fifth of their value in the early days, recouping some of the losses in the last few weeks. While it was expected that GDP will contract, markets continued to soar. However, “Beautiful markets do not signify a beautiful economy,” the report said. Earlier, Prime Minister Narendra Modi had announced Rs 20 lakh crore financial relief package for various sections of the society who are most vulnerable due to the coronavirus pandemic. This package included relief for India’s street vendors, MSMEs, migrant workers, farmers etc. 

While the government in the last few days has tried to boost the agricultural and animal husbandry sector first with major agricultural reliefs in the financial package and then with separate other announcements as well, the report said that the reliance on agriculture might not be able to make much of a material difference. “The share of agriculture in overall GDP is at 13.3% and thus a rural led growth is unlikely to make a material difference to overall prospects,” the report said. Since the 1950s, agriculture has best grown at 15.6%, however, even if India were to mimic that success again, it will only contribute 2% of GDP growth. 

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