For the economic package announced yesterday, the actual fiscal hit felt by the government should only be Rs 24,000 crore, that is, 0.12 per cent of GDP in FY21.
In the first set of details on Prime Minister Narendra Modi’s special economic package, Finance Minister Nirmala Sitharaman made the path clear for benefits of nearly Rs 6 lakh crore. However, the government will not have to bear the entire amount; instead, a very small portion is to be borne by the government. The actual fiscal hit felt by the government should only be Rs 24,000 crore, that is, 0.12 per cent of GDP in FY21. Further, the true cost to the government will be realised only over the coming years, especially on the guarantees given, research and brokerage firm Emkay said in a note.
The difference between the high headline number of benefits and much lower cost to the government is due to the fact that most of the benefits given in the latest announcement are in the form of government guarantee. The free-collateral MSME loans of up to Rs 3 lakh crore is one such example. Besides, slashing EPF from 12 per cent to 10 per cent will also not make any dent in the government’s pocket.
An additional Rs 75,000 is being provided in the form of guarantee and partial credit enhancement for the lower-rated firms in the NBFC sector. This is also only a guarantee, thus there will not be a major impact on the fiscal deficit and go as a contingent liability, said a Care Ratings report.
However, even guarantees can help various sectors to derive much advantage. While Rs 3 lakh crore would have flowed in the normal course from banks to MSMEs, the advantage here is in terms of the cost being capped, the term being fixed with the moratorium and more importantly, guaranteed by the government, Care Ratings report added.
Watch video: Modi’s Rs 20 lakh cr package: FM Sitharaman’s boost for MSMEs, EPF relief impressive
Along with the RBI liquidity infusion measures of Rs 5.24 lakh crores and the government’s previous fiscal package of Rs 1.7 lakh crores, the total liquidity support announced under the fiscal and monetary measures so far have reached a total of Rs 12.88 lakh crores. This leaves the government for another Rs 6.7 lakh crores of benefit to cover out of a total of Rs 20 lakh crore promised by Prime Minister Narendra Modi.