‘Stimulus to cost only about 1% of GDP’ 

#GS3 #Economy  

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. 
  • PM 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. 
  • 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. 

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. 
  • 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. 
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