Package may fall short of mitigating near-term existential crisis for businesses, workers: Nomura
The much-hyped ₹20-lakh crore economic package announced by Prime Minister Narendra Modi will have a minimum impact on the fiscal cost, estimated at about 1% of the Gross Domestic Product (GDP).
According to estimates by several brokerages, the Centre’s fiscal burden is seen ranging between 0.8% and 1.2% of the GDP.
Mr. Modi had pegged the size of the economic package at 10% of the GDP.
Regulatory in nature
“The government has aimed for the maximum bang [with the] minimum buck, with most of the relief either regulatory in nature or reflecting in its contingent liabilities rather than explicit budgetary support,” Nomura said in a report, while acknowledging that the pandemic had been used as a cover to plough through long-pending, politically-sensitive structural reforms.
“As a result, the package may fall short of mitigating the near-term existential crisis for businesses and workers, but is better designed to improve India’s medium-term growth potential and attract long-term risk capital,” said Nomura, which had pegged India’s GDP growth for 2020 at minus 5%.
The government has faced flak from the Opposition parties for not putting money in the hands of the poor who face an existential crisis with the lockdown, which is now over 50 days, destroying their livelihoods.
Guarantees, credit lines
“Within the fiscal constraints of government, extensive use of guarantees and credit lines to provide breathing space to MSMEs, economically weaker sections, farmers and NBFCs, as well as creating long-term changes in some other sectors, is an appreciable move but this may not be seen as enough to solve the immediate COVID-19 challenges (sic),” CLSA said in a report to its clients.
UBS Securities, which had pegged the fiscal cost at 1.2% of the GDP, said credit guarantees are unlikely to impact the budget balance of the current financial year as the likely impact of the deficit could only emerge once the losses materialise.
“The headline stimulus number seemed impressive, at ₹20 trillion ($267 billion), corresponding to roughly 10% of India’s FY21 [estimates of] GDP, much higher than market expectations,” said Tanvee Gupta Jain, economist, UBS Securities India, in a report.
“However, looking at the breakdown, the liquidity support and credit guarantee measures accounted for almost three-fourths of the economic support package, followed by monetary measures at 15% and fiscal support at only 10%.
“Notably, the upfront, direct fiscal cost this year from the COVID-19 support package announced so far is quite limited (1.2% of GDP),” Ms. Jain said.