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India to provide new loan guarantees to bolster Covid-battered economy

India to provide new loan guarantees to bolster Covid-battered economy
India’s Ministry of Finance has announced a 6.3-trillion rupee ($84.9 billion) relief package to support the nation’s economy in the fight against the Covid-19 pandemic.

The support measures, announced by Minister of Finance Nirmala Sitharaman on Monday, include the provision of loan guarantees of around $35 billion that are aimed at helping small businesses and sectors adversely affected by the pandemic.

According to Sitharaman, businesses in such sectors as health care and tourism are set to receive additional credit of $14.8 billion. Moreover, the emergency credit-line guarantee scheme will be expanded by another $20.2 billion (1.5 trillion rupees), from an earlier limit of 3 to 4.5 trillion rupees.

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The ministry also announced a credit guarantee scheme for micro finance institutions providing loans to the country’s smallest borrowers, including small business owners. Authorities will also allocate another $12.6 billion to provide free food and grain to millions of people within the next six months.

However, analysts are expressing skepticism over the measure, saying that the bulk of the support is provided in the form of loan guarantees instead of direct stimulus that could be sent directly to households.

“While the headline impact of the announcements is sizeable, for much part these were credit guarantees, making the net impact on the fiscal math smaller,” Radhika Rao, an economist with Singapore’s DBS Group, told CNBC.

According to the expert, the latest support measures are similar to those introduced by New Delhi during the first wave of the coronavirus outbreak.

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The success of loan guarantees will depend on how many new loans are disbursed by the lenders, according to Aditi Nayar, principal economist at credit ratings agency ICRA, the Indian affiliate of Moody’s.

The fiscal stimulus announced during the second wave of Covid-19 outbreaks amount to about 0.59% of GDP, Nomura’s Sonal Varma and Aurodeep Nandi said, as quoted by CNBC.

Overall fiscal impact for the current year may amount to 0.65% of GDP, taking into account additional spending on free Covid-19 vaccines, the Nomura analysts added.

India is the second-worst-hit country in the world by coronavirus after the United States, with over 30 million cases and nearly 400,000 deaths.

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