New Delhi: A day ahead of the Prime Minister Shri Narendra Modi’s address to the nation with his guidance and direction to deal with Coronavirus, the ASSOCHAM has approached the government for an immediate and an impactful stimulus package without getting weighed in by any possible downgrade by global rating agencies.
In a letter to the Finance Minister Mrs Nirmala Sitharaman, the ASSOCHAM, having assessed the ground impact of the three-week lockdown on the industry, trade and the broader economy, has stressed that the fiscal stimulus is a must for saving both ‘Jaan’ and ‘Jahan’, as has been so rightly emphasised by the Prime Minister.
The chamber also pressed for a direct government debt-buying by RBI to enable urgent availability of funds for the stimulus along with further monetary transmission by the banks at reduced costs. It stated that any option not to provide an adequate stimulus package along with further easing of bank rates, for guarding against any possible downgrade by global rating agencies, is fraught with the risks of economic contraction and job losses. Besides, such a scenario would lead to a rating downgrade in any case, having more severe consequences.
“Rating downgrade (one due to severe economic contraction) will hurt both debt and equity inflows. Therefore, not doing what is in the best interest of the economy i.e. to protect ‘jaan’ and ‘jahan’ through an economic stimulus shall also result in a rating downgrade. This rating downgrade, where we have economic contraction, and therefore an insolvency crisis will result in long-term harm to the economy and as the ILO says, risks sending between 250 – 400 million people back below the poverty line,” the chamber stated in its letter to the Finance Minister.
Commenting on the impact of lockdown on the economy, ASSOCHAM President, Dr Niranjan Hiranandani said, “Having braved a near-freeze for three weeks, the life does not seem to be returning to normalcy in the near future. The pain would be felt more in the coming weeks and months, making it imperative for the government and the RBI to immediately announce a major package for saving the industry, trade and millions of jobs by fiscal measures and liberal infusion of liquidity as banks are sitting on idle funds in excess of Rs 4.50 lakh crore or even more.”
In a separate letter on seeking liberal infusion of liquidity by the banks, the ASSOCHAM has suggested 40 per cent government or RBI guarantee on fresh loans while the balance risk premium can be made up by a huge spread available to the banks between their cost of funds and the yields. Banks are borrowing at 4.4 per cent (Repo) and lending at rates between 9-12 per cent. The RBI must directly buy debt of the Central and State Governments as well as provide repo facilities to NBFCs. That is also essential to ensure that liquidity in the banking system is given to all borrowers, not just from banks to Governments and vice-versa.
The chamber said that as stimulus worth several trillions of dollars has been unveiled by major central banks of the world, some of this money would eventually find way into the Indian equity and debt markets. But for that to happen, the Indian economy has to be kept in good shape.