The Centre may soon announce another fiscal package which should be almost similar to the Rs 1.75 lakh crore stimulus announced last month, a report said on Thursday. The new package should focus on interest rate subventions to medium businesses, sops for the troubled realty sector and also state run banks’ recapitalisation, Bank of America Securities said.
Last month, the government had announced a package focusing on the individuals and the weaker sections to help overcome the setbacks of the COVID-19 pandemic, which was termed as not aggressive enough.
Economists at the state-run SBI have said that much of the earlier stimulus package was already announced for in the budget and only Rs 70,000 crore is fresh.We expect the Ministry of Finance to announce a second fiscal stimulus of 0.3 per cent of GDP atop 0.35 per cent done, the BofA Securities economists said.
In support of the expectation, they said worries over fiscal deficit and inflation are overdone, they said, adding that so far the Narendra Modi government has shown prudence on this side.
In the current scenario, the choice is between a fiscal stimulus to support recovery and a higher fiscal deficit on falling growth, the brokerage made it clear.
It pitched for a 2 per cent subvention on all outstanding loans of small businesses for a year, which will cost 0.1 per cent of GDP and a five-time scaling up of the income threshold applicability for getting interest subventions for home loans to revive demand.
It also suggested a recapitalisation of up to 0.75 per cent of the GDP for bank recapitalisation as the rise in bad assets will erode capital levels. The above stimulus measures, along with the ones already announced and a likely shortfall in revenue will push up the Centre’s fiscal deficit to 4.8 per cent of GDP in FY21, which is 1.30 per cent above the budgeted targets, it said.
The brokerage said it expects the RBI to cut interest rates by 0.25 per cent in June and October to push growth, on top of the already announced 0.75 per cent cut last month.
On growth, the brokerage said it expects the GDP to fall by 2.5 per cent in the June quarter.