Why this package was needed?

The US-China trade war and the lack of liquidity in the domestic market had left the Indian economy
in the doldrums as growth slowed to historical lows of 4-5% over FY2018-19 and FY2019-20.

However, the COVID-19 pandemic, and the measures introduced to contain its spread, have dashed
all hopes of a swift recovery in FY2020-21. With the global economy facing a recession which could
turn out to be worse than the 2008 financial crisis and investors fleeing to safe havens to preserve
their wealth, Indian businesses have ground to a halt.

In its statement released on April 17, 2020, the RBI acknowledged that growth could slow to as much
as 1.9%, if not more, in FY2020-21. At the same time, the International Monetary Fund (the “IMF”)
has projected a global growth rate of (-)3% for 2020. While these projections see India as one of the
better performing economies in Asia, the fall in global demand is likely to have a massive impact on
Indian exports. Already, the RBI estimates that India has seen an export contraction of about 34% in
March 2020.

All in all, the economic impact of the pandemic on India is likely to be to the tune of INR7-8 trillion
with sectors such as trade, textiles, aviation, transport, tourism, hotels, wholesale and retail trading
and MSMEs facing the brunt of the impact. At the same time, the financial sector, especially NBFCs
and MFIs, and the real estate sector are also likely to suffer during this period due to a lack of
consumer demand. The fall in revenues and incomes will cause a substantial fall in revenue
collection by the government, which in turn, will affect the fiscal deficit in the short to medium term.
Although the IMF is predicting a V-curve recovery post the pandemic, this is likely to be an optimal
scenario and the actual recovery will depend on the length of the pandemic and the quality of the
fiscal boost provided by the Indian government.

As banks are often evaluated on their liquidity, or their ability to meet cash and collateral obligations
without incurring substantial losses, these measures had been introduced to ensure that adequate
liquidity is available to all constituents so that COVID-19 related liquidity constraints are eased.