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India's Rs 20 lakh crore stimulus package 'aimless', a 'lost opportunity', says Sanford Bernstein

Manoj Sharma     May 19, 2020

Global securities research firm Sanford Bernstein has termed the government's Rs 20 lakh crore fiscal stimulus package "aimless" and a "lost opportunity". Bernstein, in its Asia-Pacific Equity Strategy report, asked Finance Minister Nirmala Sitharaman if the actual aim of the fiscal stimulus was to revive the GDP or to just reach the Rs 20 lakh crore number.

Notably, Prime Minister Narendra Modi on May 12 announced the stimulus, saying it was aimed at making India a "self-reliant nation". The package was 10 per cent of India's GDP, placing India among countries like the United States, Japan and Germany, which had announced mega stimulus packages to revive their pandemic-ravaged economies.

As per Bernstein report, India's "desire to announce a large economic package, something that shows the world that they care about the economy and are willing to match global stimulus numbers, was perhaps the "driver" for the claim of a large package." Berstein said the package focussed on "rural and strange end markets such as space programme" at a time when measures should have been announced for urban corporates, consumptions, infra and the impacted sectors. "Rural is in control, as farm incomes are protected (good harvest season and a good start to summer crop sowing). Yet, several measures were announced for Agri."

Also read: Fiscal impact of Rs 2 lakh cr in Rs 20 lakh cr package; may not boost consumption, says SBI Ecowrap

The government came up with several long-term reform measures such as labour reforms, opening up of all sectors for private players, APMC Act reforms, commercial coal mining, among others. Berstein says broader reforms by India lacks the spark. "Not much was discussed on Land, Labour reforms, Tax rationalisation or on any coherent plan to invite foreign manufacturing. Govt's defence indigenisation plan is not new and has been poorly executed in the past and so is the case with commercial mining for coal. APMC plans are good but also need support from states. Discom plan is insufficient," the report says.

On the fiscal front, Bernstein believes the Centre has taken the easier path. The total 20 lakh crore ($280 billion) package comprises credit guarantee worth $62 billion (over Rs 4.6 lakh crore) and RBI liquidity worth $108 billion (over Rs 8.1 lakh crore). The government programmes of $173 billion (over Rs 13 lakh crore) include loans worth $132 billion ( over Rs 9.9 lakh crore), fiscal deficit worth $24 billion (over Rs 1.8 lakh crore) and rest in form of subsidies like foodgrains. "India does not have fiscal buffers hence a large fiscal stimulus would have been a bold bet - as that could have impacted ratings and currency, if not executed properly," says Bernstein.

Also read: 'Actual fiscal impact' mere Rs 1.5 lakh cr in Rs 21 lakh cr economic stimulus: Barclays

The missing part in the Centre's stimulus is a "generic economic agenda" and decisions that could have led to ramping-up of consumption, manufacturing, says the report. "We believe that equity markets are likely to be less enthused, with the package, as it is less likely to support the economy in the near/medium term. Our GDP forecast of (-7 pc) for FY21 and portfolio remains unchanged," says Bernstein.

Finance Minister Nirmala Sitharaman unveiled the stimulus package in five tranches during the week. While the total economic relief package for coronavirus is touted to be worth over Rs 20 lakh crore, its actual fiscal expenditure for the Centre is believed to be Rs 1.5-Rs 2 lakh crore.

Also read: India's GDP to contract 45% in June quarter, stimulus package 'strikingly smaller': Goldman Sachs

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