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First tranche of Stimulus 2.0 worth Rs 5.94 lakh crore; govt's burden only Rs 56,500 crore

Dipak Mondal     May 13, 2020

As expected, the government exchequer has taken a very small 'hit' on account of the first tranche of stimulus package announced today. Of the Rs 5.94 lakh crore worth of announcements made today, the government is taking a direct hit of only Rs 56,500 crore.

With the Rs 56,500 crore now and the Rs 70,000 crore incremental cost borne by the government for its first stimulus package of Rs 1.7 lakh crore, the total impact on government finances is to the tune of Rs 1.26 lakh crore of the total Rs 13 lakh worth of stimulus announced so far (including the Rs 5.2 lakh crore liquidity infused by the RBI since March).

The Rs 56,500 crore cost incurred by the government is owing to Rs 50,000 crore loss of revenue due to 25 per cent reduction in TDS and TCS rates, Rs 4,000 crore support for subordinate debt to stressed MSMEs, and Rs 2,500 crore for payment of employer and employee contributions into EPF accounts of eligible establishments.

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"This reduction in TDS/TCS is one measure so far which will have a significant direct impact on the government's exchequer. Other measures, which are mostly in the form of credit guarantee will not have direct or immediate impact on the central government exchequer," says Sreejith Balasubramanian, India economist, IDFC AMC.

"This package is based largely on credit guarantee provisions implying minimal direct cost for the central exchequer which may be just a small fraction of today's package. Any additional cost would only be on account of defaults, the burden of which may arise only in future years. In the case of the power sector, the burden of bearing the default is in fact, on the state governments," said DK Srivastava, Chief Policy Advisor, EY India.

The government today announced a slew of measures mostly for MSMEs, NBFCs and small taxpayers. The major announcements include Rs 3 lakh crore collateral-free loans for MSMEs, liquidity facility worth Rs 75,000 crore for NBFCs, and Rs 90,000 crore liquidity injections for power discoms.

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Today's announcements are part of the Rs 20 lakh crore stimulus package promised by the Prime Minister in his address to the nation on Tuesday. Despite a lot of speculation on whether the Rs 20 lakh crore package will also include the fiscal package announced by the government and liquidity measures taken by the RBI earlier, the Finance Minister chose to remain silent on the issue today.

Meanwhile, going by the presentation made by the Finance Minister today, it seems the Rs 20 lakh crore package may include Rs 5.2 lakh crore liquidity measures taken by RBI since March 2020 and the Rs 1.7 lakh crore fiscal package announced by the government in March this year.

Of the Rs 1.7 lakh crore stimulus package announced earlier, the government had incurred an additional cost of Rs 70,000 crore while the rest of all were already budgeted for.

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