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Analysts set the scope of new measures at Rs 10.71 lakh crore, as the total figure takes into account the measures that the government and RBI have already announced. Around Rs 1.7 lakh crore is what the government previously announced as a stimulus to the poor. The steps RBI took add up to Rs 6.5 lakh crore, they said.
Given recent changes in labor laws in states like Uttar Pradesh, Gujarat, and Madhya Pradesh and recent government directions to boost supply chains moving into the country from China, the stimulus is considered a big boost to manufacturing in India. .
“We believe that a considerable amount of money could go to bank guarantees for the MSME sector, refinance facilities, and long-term tax exemptions for industries to boost manufacturing. Any allocation to a credit guarantee fund will add to liabilities. Government contingents, but will not worsen India’s fiscal deficit calculations, “said UBS.
Previously, in Union Budget 2020, the government had announced the elimination of DDT (Rs 0.5 lakh crore) and offers personal income tax cuts (Rs 40,000 crore). In September 2019, the government announced corporate tax cuts worth Rs 1.45 lakh crore.
Edelweiss Securities said the stimulus can potentially be divided into four ways: loan exemptions for MSMEs and increased spending; tax cuts, including GST adjustments and personal income tax rates; credit guarantees to incentivize loans to MSMEs; and the possibility of establishing a special purpose vehicle (SPV) with government capital and RBI levers to lend directly. If implemented, this would be similar to what the Federal Reserve is doing these days, he said.
“While the first two measures (income transfers and tax cuts) will involve a fiscal cost, the last two measures (credit guarantees and direct loans) will have few fiscal implications,” said Edelweiss.
Rahul Bajoria, India’s chief economist at Barclays, said the prime minister repeatedly stated that India needs to be ‘self-sufficient’, invoking a material increase in Covid-19 related production for health and protective equipment as a manufacturing measure national.
“This is a trend, which has persisted for the past few quarters, and has led to significant increases in customs duties in recent years. We believe that more measures to reverse service structures to protect and promote domestic manufacturing could be in the anvil, but we expect more clarity, “said Bajoria.
In a tweet Tuesday, Sitharaman said: “We will build capabilities, train people and compete by building strengths globally. We will build the local. After all, each global brand started with its local strength. We will integrate with the GVCs.”
The GVCs represent global value chains, which refers to the international exchange of production.
In another tweet, the FM said a human-centered globalization is being discussed. “Vasudaiva Kutumbakam is the spirit. In our culture, we treat the earth like the mother. So when we talk about self-sufficiency, we talk about the well-being of everyone,” he said, adding that the ongoing pandemic has provided an opportunity to make the 21st century an Indian century.
Arindam Guha, a Lead (Government and Public Services) partner at Deloitte India, said the package is likely to prioritize sectors where there is a large internal market and which can generate significant employment.
It expects significant reforms that affect all stages of the value chain across sectors, from farm to consumer, with the ultimate goal of increasing ease of doing business. “The package is likely to take advantage of financial instruments such as credit guarantees so that the country’s fiscal situation is also taken into account,” Guha said.
Jefferies said the incremental package would be 5 percent of GDP. “Part of the same thing could be the reformulation of existing schemes,” he said. He noted that the first fiscal package that the government recently announced had allocated only 60 percent, or Rs 90 billion rupees, to new spending, while the rest was reallocation.
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