By Eric Bellman

NEW DELHI -- India announced another round of stimulus measures Thursdayin hopes of resurrecting growth in its economy, which has been one of the hardest hit by Covid-19.

India's finance ministry unveiled a long list of new policies to encourage investment and hiring to support those who are suffering most. The central government and the central bank have together announced at least five plans to get the South Asian economy -- once the fifth largest in the world -- back on track, but it has been shrinking for six months.

India's gross domestic product growth rate was the highest of any major economy just three years ago. In the quarter ended June, its economy contracted more than any other.

The country has been reeling from the effects of the world's biggest lockdown, which lasted for two months starting in March and has slowly been opened up. Its GDP growth plummeted close to 24% compared to a year earlier in the three months ended June. The Reserve Bank of India said Wednesday that it likely fell another 8.6% in the quarter after that.

"India is likely to have entered a technical recession in the first half of 2020-21 for the first time in its history with two successive quarters of GDP contraction," the central bank said in a report.

The Reserve Bank of India said, however, that it is seeing initial signs of a return to growth this quarter.

Indian has more than 8.5 million confirmed cases of Covid-19. Only the U.S has more. The number of new cases confirmed in India each day has come down sharply in recent months, but health officials are worried the numbers could start rising again as colder weather arrives and people congregate more indoors.

India Finance Minister Nirmala Sitharaman said Thursday that she is optimistic that growth is returning as more Indians start shopping and working but still announced a slew of new measures to ensure growth stays.

"India's economy is seeing a strong recovery," said Ms. Sitharaman, citing data of an increase in goods and services tax collection and a rise in energy consumption.

Ms. Sitharaman announced a 2.65 trillion rupee ($35.48 billion) financial package to stave off the country's economic contraction and prevent an extended bout of unemployment. The measures included cheap bank loans for struggling sectors like automobiles, government support for companies that hire new employees and tax breaks for home buyers.

India is desperate to get its economy back on the high-growth path as soon as possible as so many of its more than 1.3 billion citizens live on or near the poverty line. It needs consistent growth of more than 5% if it wants to create employment and improve their lives, economists say.

New Delhi says that all the measures added up come to around $400 billion in stimulus or around 15% of the country's GDP. Economists say much of that total is not actually new spending but measures to increase lending. It includes figures such as tax rebates that have been fast-tracked and looser restrictions on lending.

Sujan Hazra, chief economist at Anand Rathi Securities, estimates that less than 10% of that total is actual new spending by New Delhi. Most of the support is through measures to increase liquidity, which is not enough to jump start high growth, he said.

"Overall, the size of the stimulus is compatible with emerging-markets economies," he said "But the fiscal component is low and a major part of it is through bank credit channels and liquidity measures."

India's GDP could contract between 6.5% and 10.0% in the fiscal year through next March, he said.

One of the things holding New Delhi back is it does not want to borrow much more. It took years to bring the country's fiscal deficit to GDP ratio down to a reasonable level and it does not want to erase that progress. Higher debt levels hurt countries by making it more expensive to borrow and weakening their currencies.

Instead, Prime Minister Narendra Modi has been trying to use economic reforms to make markets more efficient and trigger investment by local and international companies. He has pushed through a potpourri of regulatory changes in recent months.

His government has dismantled a longstanding system that blocked farmers from selling directly to consumers and forced them to sell most of their crops through government-approved wholesale markets. It passed labor measures that increased the number of companies that can fire workers without government approval. It also expanded the country's social-security program to include many contract workers.

With a growing number of global companies looking for ways to diversify their supply chains away from China, India is also trying to make it easier and more profitable for foreign firms to build factories in India.

Just Wednesday, Mr. Modi's cabinet approved massive tax incentives -- worth more than $19 billion over the next five years -- for companies that set up new manufacturing and exporting facilities in India.

--Rajesh Roy contributed to this article.

(END) Dow Jones Newswires

11-12-20 0757ET