India has very little space for fiscal stimulus: Ind-Ra

Kolkata: There is very little space for fiscal stimulus, since the government’s plan to raise gross borrowings to Rs 12 lakh crore from the budgeted Rs 7.8 lakh crore is expected to be used to meet the revenue shortfall, India Ratings & Research said Friday.

The revenue shortfall is likely to account for 95 per cent of the increased borrowings, leaving a purse of just Rs 20,000 crore for the government to provide fiscal stimulus.

“This is too small an amount to make any difference to the sagging economic activities and demand,” India Ratings said in a note.

The rating firm said that a meaningful stimulus is only possible if the government sharply cuts the budgeted capex and reprioritises expenditure.

The government promised to support the ailing economy which has come to a standstill amid lock down with a Rs 20 lakh crore package largely by way of bank loans and government guarantees. The package includes providing liquidity support to individuals as well as firms under stress.

“As most of the liquidity support will be done by the banks and other financial institutions, the impact on the fiscal deficit of the government will be limited,” Care Ratings said in a separate note.

India Ratings said the central government is unlikely to meet even the revised estimate of FY20 due to the country-wide lock down. The centre’s gross and net-tax revenue is now estimated to be Rs 1.73 lakh crore and Rs 1.20 lakh crore or even less, even less than FY20 revised estimate. This would translate into a revenue shortfall of Rs 1.62 lakh crore from the FY20 revised estimate.

The onus to provide support to not only vulnerable sections of the society but also state governments lies on the central government, because the actual battle against COVID-19 and associated expenditure is incurred by the state governments, it said.

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