Package much smaller than it seems: Fitch

NEW DELHI: The government’s ₹20.97 lakh crore Covid-19 package lacks in addressing immediate concerns of the economy as the actual fiscal impact of the additional stimulus is only about 1% of GDP as opposed to the claim of 10%, Fitch Solutions said.

“About half of the package amount covers fiscal measures that had previously been announced and also include the estimated economic impact of monetary stimulus from the Reserve Bank of India (RBI),” Fitch Solutions added in a note.

The rating agency said a seeming reluctance for fiscal expansion by the central government amid the Covid-19 crisis in India also poses a significant downside risk to its 1.8% growth forecast for 2020-21 fiscal.

“India’s economic crisis is growing increasingly dire due to surging infections and weak demand both domestically and externally. We believe that every delay to effective government stimulus will only deepen the downturn, which will eventually require even more spending to lift the economy out of the doldrums, which could see the deficit come in wider,” it said.

The new fiscal stimulus announced between May 13 and May 17 is “made up of the government loan guarantees, credit extensions to be led by banks, and regulatory amendments,” the rating agency said.

“We see the package as being lacking in addressing the immediate concerns of the economy and have revised our central and combined deficit forecasts for FY2020/21 (April–march) to 7% and 11% of the GDP respectively, from 6.2% and 9% previously,” the agency said.