What Does The Rs 20 Lakh Crore Financial Stimulus Package Announced By PM Modi Really Mean?

On Tuesday in his address to the nation, Prime Minister Narendra Modi announced a much needed Rs 20 lakh crore financial stimulus package to revive the economy that has been badly hit by the COVID-19 pandemic and the lockdown.

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The prime minister said that India's resolve to make ourselves self-reliant will be based on five pillars - economy, infrastructure, technology-driven system, vibrant demography, and demand. While he announced the financial package of Rs 20 lakh crores which is 10% of India's GDP he did not reveal many details about it.

AFP

The prime minister said the details of the economic package will be made public by the finance minister in the coming days. ¡°Starting tomorrow, over the next few days, the Finance Minister will give you detailed information about this economic package inspired by the ¡®Self-reliant India campaign¡¯,¡± the PM said.

While we still wait for the Finance Minister to give the details, here is what we know so far.

The Rs 7.1 lakh crore package announced by the RBI on March 24 will be a part of this.

The government had announced Rs1.7 lakh crore as cash transfer and provision of foodgrains etc for the poor which will also be included in this.

AFP

According to IANS, economists estimate that the stimulus package could be around 10.71 lakh crore.

When one adds the earlier stimulus of Rs 10 lakh, then the matrix may look like this. This would taken into consideration the fiscal stimulus package number 1, the RBi package and the various tax sops announced in the Union Budget.

As per one working calculation by economists, the nominal GDP is Rs 200 lakh crore.

The Covid fiscal stimulus part 1 was Rs 1.70 lakh crore. The projected fiscal stimulus part 2 is likely to be Rs 10.71 lakh crore, taking the total package to Rs 12.41 lakh crore, which would be 6.21 per cent of the GDP.

Now coming to the old fiscal stimulus of FY 21 which includes a corporate tax cut of Rs 1.45 lakh crore. A dividend distribution tax (DDT) tax cut of Rs 25000 crore, personal tax cut of Rs 40,000 crore, taking the total tax cut stimulus to Rs 2.10 lakh crore or 1.05 per cent of GDP.

AFP

The RBI had also announced a monetary stimulus which needs to be factored in. One package on March 27 was worth Rs 3.74 lakh crore while the one announced in February was Rs 2.80 lakh crore. The total RBI package becomes Rs 6.54 lakh crore which is 3.27 per cent of GDP.

Combining all this makes the total of fiscal and monetary stimulus at Rs 20 lakh crore which is 10 per cent of GDP. This package will make the actual fiscal deficit projected at 10.67 per cent and the actual nominal fiscal deficit of the central government including off-balance sheet items at 21.33 per cent.