People watch Indian Prime Minister Narendra Modi's address to the nation on a television in Siliguri on May 12, 2020. Photo: AFP

Shares on the Bombay Stock Exchange jumped as much as 3% on optimism a new economic stimulus package would revive Asia’s third biggest economy now stalled by a nationwide lockdown to contain the Covid-19 pandemic and a nagging slowdown.

Indian Prime Minister Narendra Modi announced Tuesday an economic package of 20 trillion rupees ($265 billion) and promised bold reforms to make the nation more self-reliant. He said this would mean support for local brands and production with a focus on helping small entrepreneurs, farmers and the middle class.

Modi said the package will be about 10% of India’s gross domestic product (GDP), close to those of Japan (21%) and the United States (13%). Details of the package will be unveiled by Finance Minister Nirmala Sitharaman during the week. The package includes measures already announced by the central bank and the finance minister.

“The size is much larger than was anticipated, especially as additional borrowing for this year was announced over the weekend and pegged at 2% of GDP, investment bank JP Morgan said in a note. “That said, one needs to be careful about extrapolating whether the 10% of GDP will be fresh stimulus for the economy, because no details are available yet.’’

The countrywide lockdown to contain the Covid-19 pandemic, which comes up for review this weekend, will be extended, Modi said. Details of “Lockdown 4” will be announced before May 18, he said.

“The package will give fresh pace to making India self-reliant and will focus on land, labor, liquidity and law,’’ he said in a nationally televised address. “It marks the beginning of bold reforms, and will also prepare India for global competitiveness.’’

Modi’s announcement comes amid India’s slowing economic growth over the past several quarters. Nomura has projected -5.1% GDP growth this year. The government announced this week that industrial output contracted by almost 17% in March, even though the lockdown did not come into effect until March 25.

“India is committed to bold economic reforms of rational tax system, good infrastructure and strong financial sector,’’ he said. “The reforms will help attract global investments and will help ‘Make in India’ project strong.’’

Yet critics remain skeptical he can raise the resources. The government last week increased its proposed borrowings for the current financial year, triggering a 20-basis point spike in the benchmark bonds. Economists revised India’s fiscal deficit projection to 5.8% from 3.5%. Any revival package would have to wait until the lockdown is lifted.

“The 10% of GDP package is likely to subsume the first announcement of about 0.8% of GDP but it’s not clear whether it includes (i) liquidity measures already announced by the RBI that amount to about 2.5% of GDP – which is likely given the reference to liquidity in the PM’s statement; (ii) how much of this is a credit guarantee scheme versus fresh spending; and (iii) whether existing spending will be re-purposed for this package. Therefore there is no way to tell yet how much of this will translate into additional spending from the budget in the form of fresh stimulus,’’ said JP Morgan in its note.

Modi spent the first 20 minutes of his 33-minute speech in Hindi detailing India’s rich heritage and culture and its commitment to global prosperity and development. The leader also tried to revive the sagging spirits of the country’s 1.38 billion people, invoking India’s rich past and strong capabilities, emphasizing that the 21st century belongs to India.

He focused on the country’s domestic capabilities, pointing out that India, which didn’t make a single unit of PPE and made very few N-95 masks before the pandemic hit the world, today produces 200,000 PPEs and and another 200,000 N95 masks a day.

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