economic stimulus package: new support of only Rs 12-13 lakh cr in PM Modi economic stimulus: Report

Mumbai: From the Rs 20-lakh-crore package that PM Modi announced to defend the economy against coronavirus disruptions, the new support may be only around 60 percent of supply, as it features the first financial stimulus and support from liquidity that the Reserve Bank has already given, and will overload the bond market, a report says. In a major push to revive the COVID-hit economy, PM Modi announced new massive financial incentives on Tuesday in addition to previously announced packages for a combined stimulus of Rs 20 lakh crore.

Modi described a Rs 20-lakh-crore that is 9.7 percent of the GDP aid package, of which the new allocations could only account for 50-60 percent of supply. But until more details are known, the financial burden will fall on the bond markets, Radhika Rao, an economist at Singapore lender DBS Bank, said in a note on Wednesday.

Furthermore, he noted that “the new tax package has been expanded and its scale offers a positive surprise, with a larger-than-expected size with an emphasis on making the economy more self-sufficient through local manufacturing and better supply chains.”

It should be noted that the government had announced fiscal measures worth Rs 1.7 lakh crore in late March, while the RBI offered liquidity support of Rs 3.7 lakh crore in March and Rs 2 lakh crore in April.

“The new fiscal measures could represent around 60 percent or Rs 12-13 lakh crore. If this includes a broader network of RBI measures, then the new package could amount to Rs 10 lakh crore,” said Rao.

In addition, he said a coordinated approach is needed to buffer some of the downstream effects of the growth slowdown, which will affect income, employment and business viability.

The nuances of the measures are key, in particular the details of how much short-term relief is for micro, small and medium-sized enterprises (MSMEs), sector-specific payments, cash payments to the poor, loan guarantees, infusion of capital in banks, Mahatma Gandhi National Rural Employment Guarantee Act (MNEGRA), etc., and on medium-term priorities such as infrastructure, labor / agrarian reforms, etc.

“This will determine the extent of the economic buffer for growth, income and job prospects this year,” he said.

On the fiscal side, the report says the revenue deficit is already translating into a deficit increase from the budgeted 3.5% to at least 5.5% now. Assuming that only part of spending is reflected in fiscal year 20 fiscal math and that capital spending is reduced, the deficit could increase by another 2.5-3 percent of GDP.

On the financial side of the package, the report said it will have to be seen if the majority will be raised through loans, especially if states will participate or alternative sources such as COVID-19 bonds, multilateral loans, taking advantage of offshore investors / markets. , new sources of income (HNI indirect or income taxes), etc.

“Until clarity is available, the burden of financing will fall on the short-term bond markets and to stabilize the markets, the focus will revert to RBI participation,” he said, adding that market indebtedness is likely to increase. even more, at least Rs 7-10 lakh crore, assuming that everything is raised domestically and through the issuance of bonds.

But the report warns that the pressure will be on RBI to increase bond purchases given the limited absorption capacity of domestic investors and foreign portfolio investors with risk aversion.