The direct fiscal impact of the economic reforms worth Rs 20 lakh crore comes around Rs 2 lakh crore, which is just 1 per cent of GDP, an SBI Ecowrap report said. The package does not do much to boost consumption in short-term and that could act as a drag on growth, said the report, adding the announcements were a mix of short-term and long-term measures.
The revenue loss for the Centre after taking into account the gains from excise duty hike and DA freeze comes around Rs 6.53 lakh crore, says SBI. The government has also announced additional borrowing of Rs 4.20 lakh crore for FY21. "As per our estimates, a total of Rs 4.36 lakh crore is still the uncovered loss of the Centre even after the additional borrowing by the Centre. Interestingly, this is nearly equivalent to Budgeted Capital Expenditure (CE) of the Centre, implying almost negligible growth in CE in FY21," said the report.
On the enhancement of states' borrowing limit from 3 to 5 per cent of GDP, the report said states could incur loses worth Rs 3.2 lakh crore even after the additional borrowing. "Accounting for extra revenue for states and COVID expenditure, the states will lose around Rs 6.4 lakh crore, of which only Rs 3.2 lakh crore can be compensated by borrowing, as states will not be able to borrow Rs 4.28 lakh crore because of conditional ties attached," says the report.
Considering huge losses in revenue, SBI expects states to at least strip its estimated budgeted capital expenditure for FY21 of Rs 8.8 lakh crore by 50 per cent, if not more. "We expect the Centre and RBI can take a considered call of increasing the fiscal deficit of states by using the exceptional clause. We are thus less hopeful of recovery in current fiscal and our GDP numbers could now have a downward bias from current stress estimate of-4.7% in FY21," it added.
On the Centre's announcement to enhance minimum threshold to initiate insolvency proceedings raised to Rs 1 crore from Rs 1 lakh, SBI says the RBI needs to give operational flexibility to banks for a comprehensive restructuring of the existing loans. "With the lockdown now extended up to May 31st, we expect RBI to extend the moratorium by 3 months more. This will imply companies need not pay till Aug 31st, and it will imply the almost minimal possibility of companies being able to service their interest liabilities than in September, failing which the account might be classified NPA as per extant norms. Thus the RBI needs to give operational flexibility to banks for a comprehensive restructuring of the existing loans and also a reclassification of the 90-day norm," it said.
On the new Public Enterprise Policy, which is expected to free capital locked in failed PSEs, SBI says it is unclear whether the measure extends only to Central PSE or includes state PSE also. "As of March 2019, India has 262 operating PSEs contributing Rs 1.43 lakh crore of profit. However, in the services sector where there are 134 PSEs the amount of profit is only Rs 12,584 crore (i.e. Rs 545.6 crore profits per PSEs)," it added.
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