Stimulus 3.0 supportive for growth but fiscal impact unclear: Report
   Date :17-Nov-2020

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Business Bureau :
India’s third tranche of stimulus measures should support economic rebound over the coming quarters but the actual fiscal impact is difficult to ascertain, Fitch Solutions said on Monday. The Government on November 12 announced another stimulus package, called Aatmanirbhar Bharat Abhiyaan 3.0, totaling Rs 2.65 lakh crore. The package included a boost to formal employment, the Production Linked (PLI) Scheme, an increase in the fertiliser subsidy and the rural employment programme, MGNREGA. Motilal Oswal in a separate report said its calculations suggest the actual fiscal outgo in FY2021 could be a maximum of Rs 1.1 lakh crore (0.5 per cent of GDP).
This, along with the previous announcements, total fiscal package amount to Rs 17.7 lakh crore (8.7 per cent of GDP). “However, our calculations suggest the actual fiscal outgo in FY21 could be a maximum of Rs 4.7 lakh crore (2.3 per cent of GDP),” it said. In a report, Fitch Solutions said India’s fiscal deficit is likely to be 7.8 per cent of the GDP in the Fiscal Year’21 (April 2020 to March 2021). “While many of (Stimulus 3.0) scheme should be supportive to India’s economic rebound over the coming quarters, the actual impact on public finances is difficult to ascertain,” Fitch said. The PLI scheme, for instance, spans across a five-year period, and their fiscal impact will likely only be seen from FY2021-22 onward, it said.
“Estimating using the outright fiscal outlays from this announcement, ‘Stimulus 3.0’ appears to suggest additional expenditure of Rs 1 lakh crore (0.44 per cent of FY2019/20 GDP),” it said. Moreover, the announcement did not outline any additional borrowing to finance these additional spending, which suggests a reallocation of FY2020/21 budget expenditure plans instead, Fitch added.
Exactly a month after the ‘Aatmanirbhar Bharat Abhiyaan 2.0’ package – which included announcements regarding consumption and investment – was announced on October 12, the Central Government came out with its third round of stimulus package. Stimulus 3.0 package included Rs 1.6 lakh crore toward the PLI Scheme and remaining Rs 1.2 lakh crore toward the other 11 announcements such as the extension of the Emergency Credit Line Guarantee Scheme (ECLGS 1.0) up to March 31, 2021, launch of ECLGS 2.0 for the 26 stressed sectors, income tax relief for developers and home buyers, and budget outlay for R&D toward the COVID-19 vaccine.