India Offers Credit Guarantees for Small Businesses, Workers, and Banks as Part of Economic Response  

Following the Indian Prime Minister (PM) Narendra Modi’s announcement of economic rescue package worth 20 trillion rupees, the government has revealed some sectors where it focused to allot shares of the budget.  On Wednesday, May 13, 2020, the Indian government announced that it has provided nearly $60 billion of loan guarantees for small businesses, shadow banks, and power companies as part of economic responses to fight the coronavirus pandemic.

Allotment of the Budget Shares

In an address to the nation on Monday, Modi unveiled an economic rescue package, which was equivalent to 10% of India’s gross domestic product (GDP) to save the country’s economy from rolling towards a deep recession, impacted by the virus outbreak. The PM promised that the details of the allocation of the budget, which was worth 20 trillion rupees, would be revealed in a week.

On Wednesday, the Indian Finance Minister, Nirmala Sitharaman has revealed how the government allotted the share of the budget to different sectors to boost the failing economy of the country. Sitharaman, in the first of several daily press conferences on the package, said, “We have a responsibility toward the poor, the needy, the migrants, and the disabled.”

She told reporters that the government has decided to set up two debt and equity funds amounting to 700 billion rupees ($9.3 billion) to support stressed businesses and claimed that this would contribute to the social security funds of workers for three months.

She further explained that the government aimed to help 4.5 million businesses by October and help them access collateral-free loans from banks since it would offer a wide range of credit guarantees to lenders. She also mentioned providing 900 billion rupees ($11.95 billion) for power distribution companies via state-run power finance companies, with some benefits extended for real estate companies.

Rising fiscal Deficit

Several industry leaders in India had welcomed the government’s move and its allocation of the budget. A top industry body the Confederation of Indian Industries (CII) said in a statement, “The measures announced by the finance minister are very well-targeted and meet the immediate as well as longer-term requirements.”

Meanwhile, Sitharaman explained that the economic package was partly funded from the additional borrowing of the government, which meant to suggest that India was facing a rise of fiscal deficit due to borrowings. However, she declined to disclose the impact on India’s fiscal deficit, which many private economists say could widen to over 5% of GDP due to a fall in revenue and additional spending.

Rahul Bajoria, the chief India economist at Barclays, Mumbai, said that the measurement announced on Wednesday would take up about 555 billion rupees of total fiscal spending, indicating more room for extra spending.

Earlier, this month the government sought a plan to borrow 12 trillion rupees in the fiscal year to March 2021, up from the previously budgeted 7.8 trillion rupees, to meet the rising needs of the government’s spending.

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