Nevertheless, as many as 69% of respondents in a Ficci-commissioned survey have indicated that measures initiated so far by the government are inadequate and called for more steps.
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The Cabinet will likely clear the next round of relief measures on Wednesday to prop up an economy battered by the COVID-19 pandemic, with a focus on saving both lives and livelihood. Critical sectors, including MSMEs, exports, aviation, construction and some other labour-intensive segments, will likely be among the many to get the succour.
The government’s total fiscal response over an extended period could be worth 3-4% of GDP (roughly Rs 6-8 lakh crore), on top of the monetary measures initiated by the central bank to ease liquidity to critical sectors. However, the Centre will calibrate its responses and announce several rounds of measures over the next few weeks, while refraining from declaring just a one-time, big-bang stimulus package.
The idea is to save some fiscal fire-power to deal with the ‘unknown unknowns’ later. Last week, Prime Minister Narendra Modi held a marathon meeting with finance minister Nirmala Sitharaman and top officials to give a shape to the package.
Given the collapse in economic activity, the government will, for the moment, focus on addressing medical emergency and preventing job losses in both formal and informal sectors. To that extent, its immediate interventions will be aimed at helping businesses prepare for a gradual return to normalcy, by easing flow of liquidity, as and when the lockdown is lifted completely.
Official sources have indicated that the Centre will front-load expenditure and could borrow more from the market than the budgeted levels to finance productive spending, given the revenue shortfall (tax collections are expected to be down by 1% of GDP in FY21). It has budgeted gross market borrowing at Rs 7.8 lakh crore for FY21 and aims to borrow 62.5% of it in the first half itself. The full-year net borrowing is budgeted at Rs 5.36 lakh crore.
The government may even ask the RBI to monetise the deficit by printing more money, after gauging inflationary pressure and broader impact on the economy. However, any such decision will be taken only around October-November when it starts to review its finances for the revised estimate for this fiscal, according to the sources.
Since a massive credit push is required to get the economy back on its feet, the government will likely consider extending guarantee on loans extended by both banks and NBFCs that had already turned risk-averse even before the pandemic spread its tentacles in India.
To help MSMEs and exporters, the government will likely announce interest subsidy of 2-4% and expedite the release of any tax refunds or other dues to them. With key markets — the US and the EU — bruised by the COVID-19 and over a half of their orders cancelled, Indian exporters are facing an unprecedented crisis.
Already, it has extended a Rs 1.7 lakh crore package to help the poor and the vulnerable. Of course, over a half of it is to come from funds meant for states and existing schemes. It has also announced another Rs 15,000 crore to bolster the health networks over the next four years.
Nevertheless, as many as 69% of respondents in a Ficci-commissioned survey have indicated that measures initiated so far by the government are inadequate and called for more steps. About 72% of them believe the COVID-19 impact on business will be either high or very high.
The finance ministry has already held a meeting with top executives of state-run banks to review liquidity in the system and the lenders’ preparedness to support the credit appetite of the economy with the lifting of lockdown for certain segments on April 20. A drop in public-sector banks’ capital position due to an expected spike in bad loans following the lifting of a three-month repayment moratorium is also going to be a critical issue for the government.
Having risen at a double-digit pace in FY19, non-food credit growth faltered this fiscal. Even before the COVID-19 started to spread, non-food credit growth crashed to just 6.3% year-on-year in the fortnight through February 14, the lowest since May 2017, mirroring a broader economic slowdown and risk aversion among bankers. The credit growth plunged further to 6.07% for the fortnight ended March 13, as the pandemic impact started to bite.
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