India needs a support package larger than $20 billion

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India needs a massive stimulus package to support the economy during its three-week lockdown and direct income transfer to people is essential at this point, according to JPMorgan’s chief emerging market economist. 

Most of the country’s 1.3 billion people have been told to stay indoors for 21 days starting Wednesday as part of the government’s efforts to slow down the coronavirus outbreak before India’s health care system collapses from the strain. Essential services like grocery stores and gas stations would remain open. 

Daily wage earners, small business owners, and low-income households are said to be most vulnerable during the lockdown. Prime Minister Narendra Modi’s government is expected to provide a stimulus package to help the economy. More than 1.5 trillion rupees ($19.6 billion) worth of economic stimulus is being considered, Reuters reported, citing two sources familiar with the matter. 

“India will probably require something much larger than $20 billion of support,” Jahangir Aziz told CNBC’s “Squawk Box” on Thursday. 

“60% of India’s economy will be locked down for 21 days and that’s the minimum. It could be much longer, simply because the public health system in India is so stretched, that I wonder whether a 21-day lockdown will be sufficient,” he said, adding that the move would shave two to three percentage points off India’s annual GDP.

Direct income transfer 

It is “essential” for India to consider direct income transfer measures that would put cash straight into people’s bank accounts and low oil prices can provide a timely boost in the government’s ability to fund such schemes, according to Aziz.

Back-of-the-envelope calculations showed if India keeps retail oil prices unchanged and taxes all of it, the government can get almost a percentage point of GDP in revenue to provide income support, he explained, adding that can cover nearly half of all small and medium businesses as well as millions of households.

“As far as India is concerned, it has the infrastructure, it has the means, in terms of taxing the oil dividend, to provide income transfers and that ultimately is going to be key,” Aziz said. 

The first day of a 21-day government-imposed nationwide lockdown as a preventive measure against the COVID-19 coronavirus in Kolkata on March 25, 2020.

Debajyoti Chakraborty | NurPhoto | Getty Images

Still, given the state of India’s health infrastructure, it would take a “very, very long time” for the country to flatten its infection curve to a point where the system can handle it. Data from the health ministry showed India has 593 active cases of COVID-19, the respiratory disease caused by the coronavirus. While that number is relatively low in comparison to other parts of the world, India has also tested far fewer people for the disease. 

“China gave India, and the rest of the world, of course, two months of lead time,” Aziz said, adding that most countries did not utilize that time to prepare for the outbreak to reach their shores. 

Infection numbers have risen to more than 416,600 and the death toll is above 18,500, according to the World Health Organization. It was first reported in China’s Hubei province. 

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