Modi's Rs 20 Lakh Crore Package Will Likely Have Fiscal Cost of Less Than Rs 2.5 Lakh Crore

While economists and experts have differing estimates, direct fiscal stimulus from the Centre will only be a little over 1% of India's GDP.

New Delhi: The fine print of Prime Minister Narendra Modi’s Atmanirbhar Bharat Abhiyan economic package, India’s economic response to the COVID-19 disaster, was made clear in its entirety on Sunday morning when finance minister Nirmala Sitharaman announced details of the final part of the plan.

The overall package consists of three primary components – a set of measures taken by the government before Modi’s speech on May 12, the Reserve Bank of India’s liquidity measures over the last two months and the five tranches announced by Nirmala Sitharaman over the last few days.

By the government’s calculations, as shown by the table below, this comes out to Rs 20.97 lakh crore.

Even though the announcements made are worth over Rs 20 lakh crore, the actual cash outlay by the government this year and the impact on the fiscal deficit will be far less. This is because many of the government’s proposals are credit-focused or are aimed at easing liquidity concerns for many affected sectors. In some of these cases, any costs incurred will be initially covered through banks or other financial institutions and thus not result in actual cash outgo by the Centre.

Other initiatives, particularly those made in Tranche 3, may only be ramped up over an unknown period of time and therefore may not be fully relevant for the fiscal deficit calculations this year.

Also read: Sitharaman Announces Rs 40k Crore Boost to MGNREGA, Hike in State Borrowing Limits

Accordingly, The Wire’s analysis places the additional and direct fiscal spending as a result of the Atmanirbhar Bharat Abhiyan economic package at likely less than Rs 2.5 lakh crore. As noted above, it is difficult to hone in on an exact figure as some of the spending will depend upon on the Centre’s pace of implementation and others on how many takers there are for certain programmes. 

Nevertheless, the fiscal cost this financial year will likely be a little over 10% of the overall Rs 20 lakh crore package and a little over 1% of India’s GDP (FY’20 RE).

The table below gives a range of broader fiscal impact estimates that have been put out by a number of economists  and market experts (Care Ratings, Emkay, SBI Research, HSBC India).

The higher range is nearly Rs 2.40 lakh crore, which includes less conservative calculations put out by a few experts. The higher numbers take into account the fiscal damage of some tax-related measures — SBI Research says the TDS/TCS reductions, for example, will have a Rs 25,000 crore impact — or assume that certain proposals will be fully implemented and their announced amounts spent this fiscal year. 

On the lower range, we have estimates like that of Barclays’s chief India economist, Rahul Bajoria, chief India economist at Barclays, estimated that the actual fiscal impact of the announcements made over the last five days is Rs 1.5 lakh crore.

“…five tranches provide for Rs 10 lakh crore. The actual outflow from the Budget is not clear. It looks like that there could be Rs 75,000 -Rs 80,000 crore which could go immediately while the Tranche Three package of Rs 1.5 lakh crore would be provided for over a period of time and not immediately as the targets are fairly long term and it is not clear if organizations like NABARD would be playing a role,” Care Ratings said in a statement on Sunday afternoon.