Experts see around 1% fiscal impact from financial package

The government has announced nearly Rs 21 lakh crore of financial package to revive the economy. The focus of the financial package is more towards the supply side than demand, which was a disappointment, experts feel.

The government pushed 'Make In India' initiative through this package, saying the package will make 'Self Reliant India' (Atmanirbhar Bharat) which covers a lot of sectors including MSMEs, NBFCs, real estate, banks, defence, mining, education, healthcare, agriculture, fisheries, aviation along with opening up sectors for private, etc.

Experts feel the package is around 10 percent of GDP and it will have a limited impact of around 0.8-1 percent on the fiscal deficit as large part is towards guarantees, RBI measures, etc.

"Schemes worth 1 percent of GDP complete a package worth 10.5 percent of GDP. The large part made up of RBI measures, government guarantees and funding by other means. Hence the actual impact on FY21 fiscal deficit limited to only 0.8 percent of GDP," said CLSA as per a CNBC-TV18 report.

The global brokerage house said the measures showed long-term promise, but lack of schemes to boost demand may be seen as a disappointment.

Anand Rathi also said the policies laudably focused on the sustenance of the poorest but did little to boost demand. "Structural reforms, if implemented, can boost longer-term growth. Meanwhile, financials would bear a large part of the burden."

Jefferies has estimated the net fiscal impact of the package at 1 percent of GDP and estimated the combined fiscal deficit at 10.5-11 percent of GDP for FY21.

"Several ambitious reforms announced, many of them need active state support. We project a central fiscal deficit of 6 percent and state at 4-5 percent. The central government is expected to compensate states fully for GST shortfall," said the brokerage.

The market focus should return to earnings and economic indicators, it added.

We have been in nationwide lockdown for nearly 2 months now and the reason is to control the novel coronavirus or COVID-19 spread but given the rising cases day by day, further extension of lockdown till June can be possible, experts feel.

"The opening up all sectors to the private sector will help push potential growth. In the near-term, GDP will likely contract by 12 percent in the June quarter and 0.1 percent in FY21. This assumes that the national lockdown is extended to June," said Bank of America Merrill Lynch.

The global brokerage expects the RBI MPC to cut the reverse repo rate by 75 basis points to 3 percent by October.

"RBI will likely conduct open market operations (OMO) of $75 billion to fund the higher fiscal deficit. RBI should be able to sell up to $50 billion to defend the rupee," it said.

BoAML expects the government to offer interest rate subsidy to MSMEs and real estate. It further expects the government to issue PSU bonds of 0.5 percent of GDP to fund capex and recapitalisation PSU banks.

Date: May 19