Police wearing coronavirus-themed helmets ride horses as they participate in an awareness campaign during a 21-day government-imposed nationwide lockdown in Secunderabad, the twin city of Hyderabad, on April 2, 2020. Photo: AFP/Noah Seelam

MUMBAI – Businessmen, bankers and others are all calling on the Indian government to implement tax cuts and roll out economic relief packages commensurate in size to Japan, the United States and Australia amid forecasts economic growth could fall to 0% this year.

India’s US$2.8 trillion economy is reeling under a month-long lockdown to contain the Covid-19 contagion, widely portrayed as the largest quarantine worldwide impacting as many as 1.38 billion people.

Prime Minister Narendra Modi’s government has so far allocated about half a percent of gross domestic product (GDP) to support the economy, a far cry from the 10% business representatives say is needed to revive growth.

They note that Japan has committed to spend 20% of GDP, the US 11%, and Australia 10% to support their Covid-19 impacted economies.

India’s government is stuck between a Covid-19 rock and a fiscal hard place, with competing imperatives of spending to keep the economy ticking and budgetary prudence to keep a possible sovereign rating downgrade at bay. But without government help many businesses will fold, leading to mass unemployment and the prospect of social unrest.

Shaktikanta Das, the central bank governor, said in an uncharacteristically outspoken comment on Tuesday (April 28) that more fiscal measures were needed. “Fiscal measures are important,” Das told a local news agency.

Reserve Bank of India (RBI) governor Shaktikanta Das (L) attends a press conference at the central bank’s headquarters in Mumbai on December 5. Photo: AFP/Punit Paranjpe

“Whether it relates to fiscal deficit or liquidity or any other extraordinary measure, it has to be applied in time, and the exit also has to be made in time.”

His comment came a day after former Reserve Bank of India (RBI) governor Raghuram Rajan also emphasized the need for the government to loosen its purse strings.

“The fiscal deficit numbers are going to look ugly whatever you do,’’ Rajan said, responding to concerns that a higher fiscal deficit would hurt investor sentiment and sovereign rating. “The important thing is to convince investors that this is necessary to keep the economy together.’’

India’s economy was already slowing before the pandemic, growing only 4.7% in the last quarter of last year, a sharp fall from the 8% achieved in the same quarter back in 2014. The national lockdown will hit hard many key industries that were already staggering, including steel, cement, automobiles and construction, among others.

The government has extended a $23 billion Covid-19 relief package aimed mainly at the poor, while the RBI has cut borrowing costs to enable banks to reduce their own lending rates.

But businessmen and analysts say that isn’t nearly enough. The lockdown, they say, has focused more on saving lives than livelihoods, an emphasis that threatens a spike in unemployment and a paralyzed economy that will hurt a majority of Indians.

India needs at least a $300 billion of revival package, of which $50-100 billion must be quickly disbursed, says Deepak Sood, secretary general of Assocham, an industry group comprising almost half a million mainly small and medium sized enterprises (SMEs).

He said the RBI and government must set aside the fiscal deficit and inflation targets and give priority to growth, including measures that allow Indian companies to more readily plug into global value chains.

“Demand has vanished, working capital, supplies, inventories are stuck, and salaries have got cancelled. In short, everything has come to a standstill,” said Sood.

A man looks out of a window from a shanty in Mumbai on April 3, 2020, as India continues in nationwide lockdown to control the spread of the Covid-19 pandemic. Photo: Himanshu Bhatt / NurPhoto via AFP Forum

“We need to help restart business, regenerate demand, and reinstate a sense of security,’’ he added. “Banks should be enabled to restructure all kinds of loans and not worry about the strict bad loan rules.’’ 

Rajiv Bajaj, managing director of Bajaj Auto, a vehicle manufacturer and Kiran Mazumdar Shaw, chairperson of Biocon Ltd, India’s largest bio-pharmaceuticals company, are among the Indian industrialists calling for an early lifting of the lockdown, which is currently scheduled to end on May 4 though could be extended in worst-affected areas.

“The longer industry operates at a feeble capacity, there will be more stress and more support will be required. It is co-related,’’ Sanjiv Puri, chairman of ITC, India’s largest cigarette maker told reporters in Kolkata.

“Whatever India is doing is far too little,’’ said Jayati Ghosh, who teaches development economics at New Delhi’s Jawaharlal Nehru University. “To finance a much-needed fiscal stimulus, the government can borrow from the central bank, just as many governments across the world are doing,’’ she said, recommending a stimulus equal to 7% of GDP.  

Borrowing funds in global markets should be doable with interest rates currently at historic lows, said Ghosh. She also said the government should immediately distribute free food from its large stocks to alleviate the suffering of the poor.