‘Govt will need to spend 1% GDP more to support econ’

India is very likely to come out with another round of fiscal stimulus package, worth about 1% of GDP in the coming months, Fitch Ratings said.

Fitch, which last week lowered India's sovereign rating outlook to negative from stable, said it has factored in the outgo for additional fiscal stimulus while deciding on the rating action.

Fitch Director Sovereign Ratings Thomas Rookmaaker said COVID-19 is still in India and it is "very likely" that the government will have to spend a bit more on fiscal measures to support the economy.

"In our forecast we have factored in a larger stimulus package, not just 1% of GDP of fiscal measures that have been announced so far. You may recall that Prime Minister Narendra Modi announced 10% of

GDP as measures, but 9 percentage points were non-fiscal in nature. There was also an announcement of bond issuance, borrowing requirement of government and that was 2 percentage points of GDP.

"That could give an indication that another 1 percentage points could come in the months ahead to provide relief for those who need it," Rookmaaker said while addressing a Fitch Ratings webinar.

The Rs 21 lakh crore economic package announced last month, includes government measures and RBI liquidity. The central government has also raised the estimated gross market borrowing to Rs 12 lakh crore from Rs 7.8 lakh crore as per the Budget Estimates for 2020-21.

Fitch has projected India's economy to shrink by 5% in the current financial year. It expects growth to rebound, to 9.5% next year, mainly due to low base.

The agency expects the potential GDP growth rate of India in the medium term to be a "little bit" lower than the previous estimate of 6.5-7%.

"The medium term growth outlook will come down a little bit. But it is too early to say by how much. We will know more by the situation in financial sector, when the moratorium (on loan repayment) gets lifted, where the financial sector basically is after the pandemic," he said.