1. Modi government’s Rs 40,000 crore fiscal stimulus booster to prop up slowing economic growth

Modi government’s Rs 40,000 crore fiscal stimulus booster to prop up slowing economic growth

The government seems to have bitten the bullet in the face of the slowing economic growth as it is considering a Rs 40,000 crore fiscal stimulus to the economy even at the cost of letting the fiscal deficit widen.

By: | Updated: September 21, 2017 12:56 PM
The government is considering giving itself some elbow room as it believes that given the current state of the economy, a fiscal stimulus is more crucial than maintaining fiscal deficit. (Image: Reuters)

The government seems to have bitten the bullet in the face of the slowing economic growth with a TV news report claiming that Prime Minister Narendra Modi-led administration is considering a Rs 40,000 crore fiscal stimulus to the economy to boost exports, support MSMEs, and expand bank credit, even at the cost of letting the fiscal deficit widen a little.

The government is considering giving itself some elbow room on fiscal deficit as it believes that given the current state of the economy, a fiscal stimulus is more crucial than maintaining fiscal deficit, ET Now reported on Thursday citing unidentified sources. The government seems to be of the view that the FRBM panel (Fiscal Responsibility and Budgetary Management) has made provisions for a higher deficit in lieu of structural reforms, the report said, adding that hence, the government is likely to relax the fiscal deficit target this year given the recent implementation of major reforms — GST and demonetisation.

As for the specific heads of the proposed stimulus, the government is considering an interest subvention scheme for MSMEs (micro, small and medium enterprises) — a sector widely considered to be among the primary drivers of India’s economy. Further, the government is also considering relaxing the working capital requirement for the MSMEs to 180 days from the current 90 days, which will provide them with enough elbow room, ET Now reported.

As for the exporters reeling under the pressure of a strong rupee and pending GST refunds, the government is reportedly looking at active forex management to aid them and tweaking the GST refunds to augment their cash flows. There are Rs 65,000 crore of GST refund claims under process, which would be disbursed only after the October returns are filed.

Further, the government may also infuse Rs 25,000 crore more into recapitalising state-run banks, in addition to the Rs 15,000 crore already budgeted. This additional amount of Rs 25,000 crore is not a part of the Rs 40,000 core stimulus package calculation, ET Now report said. India’s credit growth is stifled, with the banks reeling under the pressure of mounting bad loans, and in desperate need for capital to continue lending.

One other important area, through which the government is hoping to revive India’s economic fortunes, is increased capital expenditure on roads and railways, the report said.

Earlier last month, the government figures showed that India’s GDP growth disappointed for the second straight quarter, slowing down to a mere 5.7% in Ap-Jun and pitting the country behind China on the list of world’s fastest growing major economies. The 5.7% fiscal first quarter GDP growth was much lower than the 7.1% seen in the same quarter a year ago. It even slowed down from 6.1% in the preceding quarter. The government sought to put a major part of the blame for slowing growth on GST, saying that very high level of inventories drawdown and destocking happened as businesses rushed to clear the stocks ahead of the implementation of the ambitious tax reform.

In the government’s quest to prop up the economic growth, a major impediment seems to be a projected revenue shortfall of Rs 50,000 crore this fiscal year, since the proceeds from disinvestment and spectrum sale are likely to be low. However, the government is of the view that at this juncture it must support the economy, with not much consideration for the revenue gap, ET Now report said.

  1. H
    Hg
    Sep 22, 2017 at 5:47 pm
    All is ok. But biggest problem is fuel prices. Manufacturing industry is loosing global compe iveness due to artificially hiked fuel prices in India
    Reply
    1. B
      Btucelai
      Sep 21, 2017 at 1:43 pm
      If you want to gulp too much in one go, it is going to choke anyhow
      Reply

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