Stimulus will not trigger consumption, says Crisil

Packages focus on supply-side reforms

Updated - May 19, 2020 10:36 pm IST

Published - May 19, 2020 10:25 pm IST - MUMBAI

MUMBAI, MAHARASHTRA, 09/01/2017: Customers buy vegetables at a market in western suburbs in Mumbai on January 09, 2017 as price of vegetables fall in winter session.
Photo: Paul Noronha

MUMBAI, MAHARASHTRA, 09/01/2017: Customers buy vegetables at a market in western suburbs in Mumbai on January 09, 2017 as price of vegetables fall in winter session. Photo: Paul Noronha

The ₹20 lakh crore financial package announced by the aims at the ‘right corners’ but is not a consumption trigger, according to ratings agency Crisil.

Considering the earlier announced measures worth ₹ 9.9 lakh crore (RBI’s liquidity support and others), the financial support works out to ₹20.9 lakh crore.

“While most of the steps are in the right direction, it is unlikely to stimulate demand/ consumption given that the package is more focussed on supply-side reforms,” said Crisil in a report.

Also, no clear announcements were made for highly vulnerable sectors such as airlines, tourism and hotels, barring additional lending for MSMEs, or to improve the sentiment of the workforce, both organised and unorganised.

Given the fiscal constraints, the government has undertaken measures that can magnify the impact of every rupee of stimulus, hence, the liberal use of guarantees and tiered funding structures, Crisil said.

This reflected in the actual committed fiscal outgo of ₹1 lakh crore, translating to a meagre 9% of the ₹11 lakh crore of measures outlined over the five tranches.

The government has also ploughed in some earlier discussed structural reforms, especially in tranches 4 and 5, to help drive India’s medium-term growth story.

The announcements pertain especially to sectors such as mining, aviation, urban infrastructure, power and agriculture.

Further, the government has increased the borrowing limit for State governments from 3% of their Gross State Domestic Product (GSDP) to 5% of GSDP.

However, of the additional 2 percentage points, 1.5 percentage point is conditional upon States achieving certain targets.

For addressing near-term issues, apart from direct benefit transfers and additional spending through MNREGA, the government has mobilised credit to micro, small and medium enterprises (MSMEs), agriculture, and the affordable housing sector.

The 100% guarantee on ₹3 lakh-crore loans to MSMEs with one-year moratorium, for instance, will help these units, which are typically strapped for working capital. It will also spur credit growth for both banks and non-banks this fiscal and contain delinquencies in the segment, which would have increased otherwise.

Also, relaxation of insolvency norms should help companies in the near term as they will be protected from liquidation arising out of COVID-19 environment.

“The key monitorable now would be how States enable the implementation of various schemes and measures and work in close partnership with the Centre,” said the report.

Further, while the government has not added much to its current year fiscal outgo – and thereby deficit –it will weigh on public debt next fiscal unless the economy revives.

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