The huge difference between the benefits and the actual cost is due to the non-material benefits such as bank guarantees and permissions given in the major announcements.
Prime Minister Narendra Modi’s special economic package, expected to generate economic benefits equivalent to 10 percent of GDP, is likely to cost the government not even 1 percent of GDP. The huge difference between the benefits and the actual cost is due to the non-material benefits such as bank guarantees and permissions given in the major announcements. The total policy support of Atmanirbhar Bharat stands at nearly Rs 11 lakh crore, with a direct fiscal impact of mere Rs 1 lakh crore (0.5% of GDP). With this, the overall economic package stands at mere 0.8 per cent of GDP, said Madhavi Arora, Economist, Edelweiss.
A report by Barclays also highlighted that the government’s fiscal support programme, which sums up to Rs 21 lakh crore including Rs 8 lakh crore of measures announced by RBI, will make the actual fiscal impact of only Rs 1.5 lakh crore, which is 0.75 per cent of GDP.
The economic package 2.0 announced by the government is of Rs 11.02 lakh crore. This included five tranches of announcements made by FM Nirmala Sitharaman. Adding to it, the Modi government announced benefits worth Rs 1.92 lakh crore towards Pradhan Mantri Garib Kalyan Yojana (PMGKP) earlier. Another set of benefits came from RBI, which was worth Rs 8.01 lakh crore.
Short term concerns lost in long term gains
Even as the centre’s economic package aims to deliver more than just the coronavirus response, experts believe that the immediate fiscal push by the government should have been higher in order to spur growth in the near-term. “We reckon while medium-term reforms are imperative, a more rigorous direct fiscal push is needed to create immediate effective demand in the economy,” Madhavi Arora added.
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Meanwhile, it is estimated that the government may end up with a fiscal deficit of close to 6 per cent of GDP in the current fiscal. Also, the states are expected to utilise their additional deficit headroom of 5 per cent of GSDP, with a further 1 per cent of off-balance sheet spending, which would put the consolidated government deficit at 12 per cent of GDP, relative to 8 per cent previously, the Barclays report added.
This may make the overall borrowing requirement of the government to close to Rs 25 lakh crore. However, in yesterday’s address, FM Nirmala Sitharaman said that the focus now should be on giving more cash and opportunities to the people and businesses to revive demand and growth in the economy, instead of the budgetary constraints.