Fiscal cost of package ₹1.5L-cr to ₹4L-cr
NEWDELHI:Till Saturday evening, the government had announced ~18.8 lakh crore of the ~20 lakh crore relief and stimulus package promised by Prime Minister Narendra Modi on Tuesday.
But experts say that the actual fiscal cost of the package so far is ~1.47 lakh crore to ~4 lakh crore, with both budgetary announcements and monetary measures of RBI being included in the ~20 lakh crore Atmanirbhar Bharat Abhiyan (Self-reliant India Campaign). They added that the package is heavily skewed towards monetary measures.
On Friday, finance minister Nirmala Sithraman said that the package also includes some of the schemes announced in the budget 2020-21 on February 1. Expenditure secretary TV Somanathan added that globally both fiscal and monetary measures are clubbed while announcing a stimulus package.
DK Srivastava, chief policy advisor at consultancy firm EY India, estimated that the related additional cash cost with respect to the FY21 budget amounts to ~1.55 lakh crore or about 0.8% of FY21 GDP, including ~8,100 crores direct budgetary cost in the latest round. “The budgeted cash cost is thus a small fraction of the total value of the package announced so far,” he added.
On Friday, by which time around ~18 lakh crore of measures were announced, Ram Singh, professor at Delhi School of Economics put the figure at ~1.50 lakh crore, while an industry body estimated the fiscal component in the package offered till then at around ~4 lakh crore.
DK Aggarwal, president, PHD Chamber of Commerce and Industry said, “It looks like government cash component is going to be around 4 lakh crore out of the package announced so far including the earlier measures by
RBI and FM.” The Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce and Industry (Ficci) and the Associated Chambers of Commerce and Industry of India (Assocham) did not comment.
Commenting on the three tranches of announcements made by the finance minister, Ranen Banerjee, leader-Economic Advisory Services at consultancy firm PwC India said: “It will be very difficult to push out more than 10% of these announcements as actual expenditure during this fiscal year.”
The finance minister has so far unveiled a total ~18.76 lakh crore package in four tranches after the PM announced the ~20 lakh crore package under the Atmanirbhar Bharat Abhiyan on March 12. The ~20 lakh crore also includes the ~1.7 lakh crore announced on March 26 under the Prime Minister Garib Kalyan Yojana (PMGKY) and about ~5.7 lakh crore of monetary measures announced by RBI since March 27. Sitharaman announced the first tranche of ~5.94 lakh crore focusing on MSMEs on May 13, the second tranche of ~3.16 lakh crore on May 14 was for migrant workers and agricultural credit, and the ~1.63 lakh crore third tranche on May 15 focused on farm reforms. On Saturday, she announced a ~58,100 tranche focused on structural reforms in key sectors such as coal, minerals, civil aviation, defence, power distribution and space.
Nilaya Varma, co-founder and CEO of consultancy firm Primus Partners said exact calculation of cash component is difficult. “Definition of cash component is an issue. Will it include DBT [direct benefit transfer] only, or monetary value of grains or the money that the government will transfer to institutions to leverage? If we include all the above it can be in the range of 30-40%,” he said.
Srivastava said these initiatives relied “heavily on monetary and credit measures”. “The fiscal resources that can be tapped through the budget have been used sparingly because of considerable underperformance of tax and non-tax revenues and the limit to which the fiscal deficit can be stretched this year.”
But some of the measures would still have significant impact, Singh said.
Earlier this month, the government had raised its market borrowing estimate by a staggering ~4.2 lakh crore to ~12 lakh crore in 2020-21 to make up for an expected shortfall in revenues because of the prolonged lockdown.
The finance ministry did not respond to queries.
Answering a question on budgetary allocations finding a mention in the package on Friday after announcing the third tranche, Sitharaman said some of the schemes announced were also mentioned in the Budget 2020-21. “Yes, I have myself said, where it has been mentioned in the budget... but amounts are being released now. Where more than what was announced in the budget, additional money is being given, that has been specifically mentioned... After all, when was the budget? February wasn’t it.”
On a specific question related to clubbing monetary measures (announced by RBI) and fiscal measures in the relief package, which is not a global practice, she said, “We look at how the world has been claiming what they are doing. We have also gone into the details of looking at who’s included what stimulus into their package announcement. And so, for an example, when we are announcing ours and incidentally we are saying tax refunds are given, we are not including tax refunds. And if you noticed during my presentation, I said, it’s your money, tax-payers money I’m giving that back to you. Only that I’m not delaying, I’m not sitting over it, I’m not going to spread it over the year, I will give it to you now because money should reach your hands now. And I did mention even then that tax refund money has none gone into our calculation in claiming what we are giving as a stimulus.”
Adding to the comments of finance minister, expenditure secretary Somanathan said, “The facts are that most countries packages the way they have been reported in the press, including in the international press, are a combination of actual fiscal outgoes and liquidity provisions. This is the fact, for example there is one country that, what is called, 15% [of GDP] package, which lot of people talk about. Please look at it, 14.9% of it was liquidity. So it is not as if only one part of the package is counted. Way this is being counted is being given to you, accurately. There is a mix of fiscal impulses and liquidity provisions and almost every country in the world counts it this way.”
Srivastava said ideally, stimulus should be a balanced combination of monetary and fiscal measures. “The benefits from fiscal measures are more direct and result in overall stimulus which is larger than the original amount due to multiplier effects. Monetary and credit based measures have indirect effects as they depend on behavioural responses of various stakeholders including targeted beneficiaries, banks and NBFCs,” he said.
He also added that the issue of demand has been under addressed. “Most of the focus of policy initiatives undertaken so far has been on supply side of the economy. Demand issues remain under-addressed which require augmentation of direct government expenditure such as that on infrastructure investment, and additional benefit transfers and tax reductions and rebates for uplifting household incomes. The resource constraints faced by the government has limited its capacity to undertake more direct demand-enhancing measures.”
Banerjee said the cash transfers and enhanced spending on MGNREGA and some front loading of the transfers to farmers will create some demand at the bottom of the pyramid. “All depends on how we are able to manage the infections and extent of opening up of the economy post May 17.”