The much-awaited stimulus package 2.0, which the policymakers want to be appropriately timed to ensure its efficient and efficacious use by key economic agents, will likely be unveiled during the next three weeks, given the recent signs of a pick-up in various sectors, including manufacturing and exports.
According to sources in the government, the package would consist of production-linked incentive (PLI) schemes for a clutch of sectors, including steel, textiles and food processing, more incentives for infrastructure and construction sectors given their high labour content and an employment guarantee scheme for the urban poor on the lines of the popular rural scheme.
Besides, a host of additional welfare/relief measures targeted at the vulnerable sections would be announced, including a waiver of compound interest for specified small borrowers – individuals and MSMEs – under a certain loan limit for the six-month moratorium period through August.
The package, according to a senior government functionary, would be panned out, a few days ahead of the Bihar Assembly elections, which is scheduled to start on October 28 and have three phases.
The budgetary cost of the stimuli could be limited to Rs 1-1.5 lakh crore, as the Centre is keen on not expanding its Budget size from Rs 30.4 lakh crore budgeted. The additional burden on the budget from stimuli announced so far is roughly Rs 3 lakh crore. The Centre is expected to save about Rs 4 lakh crore via the spending restrictions imposed on central ministries for the April-December period, so about Rs 1 lakh crore is already available with it for spending on Stimulus 2.0. In fact, it might even save a considerable sum from the Rs 3-lakh-crore stimulus announced already, allowing it not to exceed the Budget size even with second tranche of stimulus.
“The stimulus will likely be a combination welfare and investment/infrastructure development-related measures. These are likely to be announced just ahead of Bihar assembly elections and the Dussehra celebrations (October 25),” a government official said. “Since stimulus is of a pan-India nature, it won’t violate Election Commission’s model code of conduct,” the official added.
The government feels the efforts being made to unclog the assorted transfers to states will have a complementary role along with the direct stimulus measures to spur the economy.
The Centre has recently stuck to its enhanced gross market borrowing target of Rs 12 lakh crore for FY21, brightening the chances of its budgetary expenditure for the year being reined in at the estimated level. This also brightened chances that the budgetary cost of stimuli — already announced and the tranche likely to be unveiled in November — would be met solely through ‘reprioritisation’, or the curbing of expenditure under select other heads.
Announcing the calendar for the second half of this fiscal, economic affairs secretary Tarun Bajaj said the Centre will borrow Rs 4.34 lakh crore, or about 34% of the full-year target. It has factored in potential stimulus requirement and lower-than-expected disinvestment revenues in the borrowing plan. Even “some surprises” can also be accommodated, Bajaj added.
A threat to the government’s plan to limit the budget size at the estimated level is a likely directive from the Supreme Court potentially enhancing the cost of debt reliefs to the exchequer.
Recently, the apex court observed that the Centre’s offer to waive “interest on interest” on loans up to Rs 2 crore for individual and MSME borrowers was “not satisfactory”. It asked the government for details of the action taken on the KV Kamath committee’s recommendations on dent restructuring for various sectors.
Given the huge revenue shortfall, even the current Budget size entails fiscal deficit close to double the budgeted level of about Rs 8 lakh crore. As even the nominal GDP might contract in the year, the fiscal deficit at this level of expenditure could be about 8% of GDP.
Recently, the government launched the PLI schemes for three sectors — electronics, pharma and medical devices. Niti Aayog has favoured a phased manufacturing programme for low-value and other products that have high domestic demand. This might feature in the second tranche of stimulus.
Already, the steel ministry has proposed incentives worth Rs 3,346 crore under a production-linked incentive scheme and a phased manufacturing programme to boost domestic production of various grades of steel that are largely imported.
As for a PLI programme for textiles and garments, the government will likely incentivise the production of about 40 items with high export potential and reposition India as a major producer of synthetic fibre-based apparels. The incentive structure for this so-called “focussed product scheme” is being worked out. The government is considering a proposal to incentivise textiles machinery output under the Atmanirbhar initiative. India meets over 70% of its annual demand through imports–which stand at about $2 billion—from countries, including Germany, China and Italy.
Finance minister Nirmala Sitharaman on Friday rejected the Opposition’s criticism that the Centre had blocked money meant for states, highlighting that while gross tax revenue dropped by close to 29.5% year on year in the April-July period, the Centre’s devolution to states dipped by only a fraction of the rate.
Replying to a debate on the first batch of supplementary demand for an additional spending of Rs 2.36 lakh crore during the current fiscal, which was cleared by the Lok Sabha recently, finance minister Nirmala Sitharaman said ka despite the pandemic and the crash in the gross tax collection to Rs 3,80,000 crore in the April-July period from as much as Rs 5,39, 068 crore a year before, the tax devolution to states stood at Rs 1,76, 009 crore in the first four months of this fiscal, compared with Rs 1,99,000 crore in the year-ago period. At the GST Council meeting on Monday, it was decided to transfer some Rs 20,000 crore collected in the compensation cess fund to states immediately, and disburse some Rs 24,000 crore lying the in IGST pool to the deserving states.