Why Does India Need Financial Action Plan 2?

In the wake of the ongoing coronavirus pandemic Prime Minister Modi has again imposed 19 days lockdown till May 3. Thus the economic damage will also be escalated due to challenges unleashed in the form of stopping everything from production to supply and from consumption to transportation. Amidst the lockdown 2.0, there is a need for another economic package. Thousands of stranded labours from UP and Bihar are demanding the government to devise a roadmap to drop them back to their homes as they are rendered jobless and can’t afford even basic essential services.

Due to the 21-day lockdown, the country is witnessing some real economic damages. According to credit rating agencies the lockdown is likely to cost the Indian economy over Rs 35,000 crore everyday. This puts the economy at a loss of Rs 7.5 lakh crore, for 21 days lockdown that got over on April 14. Now if we take lockdown 2.0 into consideration, then India will face an financial loss of around 15 lakh crore spread across both lockdowns.

Many experts point out that the fiscal package is not at par with the stimulus released by various other countries. The package announced by the government is roughly 0.71 per cent of GDP while many countries announced packages that are 5-6 per cent of their GDP.

Many economists, however, have very divergent viewpoints on this and called this comparison ridiculous and absurd, seeing the size of the economy. But now with the announcement of further lockdown, the government must come up with another package to give a sense of relief to the MSME sector.

Seeing the loss, many experts and economists are saying that the financial package worth Rs 1.7 lakh crore is not sufficient to undo the damages done to the economy and the need of the hour is for financial package 2.0, emphasising more on MSME’s and the downtrodden section of society.

With a prolonged economic slowdown that hit the demand severely and now followed by a complete lockdown, it is a very deadly combination. The government must infuse more money in the form of financial action plan 2. As the finance minister meets the PM Modi, everyone is expecting another relief package.