The government may unveil another stimulus package of fiscal, monetary and policy measures to boost demand in the economy after the nationwide lockdown imposed for the coronavirus disease (Covid-19) pandemic is completely lifted, three officials familiar with the development said on Friday.
A thorough assessment of the Rs 20.97 lakh crore Aatmanirbhar Bharat Abhiyan (Self-Reliant India Mission) will precede the likely announcement, the officials said, requesting anonymity. Some critics have said the package of fiscal and monetary measures, which included past announcements, didn’t go far enough to address the economic fallout of Covid-19 and the ensuing lockdown.
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The government has kept all its “options open” and will respond with appropriate measures to streamline supplies and boost demand to put the economy on a higher growth trajectory, one of the officials, who has direct knowledge of the matter, said.
The other two officials said the next package, which is expected at least after a month, will fill the gaps that could have been left by the series of measures already announced since March 26. The package would be prepared after discussions with all stakeholders in the economy, they said.
The government is concerned about slack in demand in the economy despite the series of fiscal and monetary measures announced in the last two months, the officials said. One sign of weak demand is the poor credit offtake despite banks reporting record loan sanctions.
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According to the finance ministry, public sector banks (PSBs) sanctioned loans worth Rs 6.45 lakh crore in just two-and-a-half months, between March 1 and May 15, to about 5.5 million accounts, but officials said the actual disbursal was minimal.
According to the finance ministry, loan disbursal will start after the lockdown is lifted. Phase four of the lockdown is set to end on May 31.
“The industry does need money, particularly MSMEs. It is good that the money has been sanctioned, now disbursal should happen as soon as possible,” HT quoted Niranjan Hiranandani, president of the Associated Chambers of Commerce and Industry of India (Assocham), as saying in a report published on May 8.
Experts say that borrowers are reluctant to avail of the sanctioned loans because they do not immediately see sufficient demand in the economy.
On May 22, the Reserve Bank of India slashed policy rates by 40 basis points (bps) and extended a moratorium on repayment of loans by another three months to provide relief to borrowers caught in the economic fallout of Covid-19. It was the third monetary intervention since March 27; The Atmanirbhar Bharat Package included RBI measures worth ₹8.01 lakh crore.
Commenting on the RBI decision, securities firm Nomura said: “While the policy easing is welcome, the effectiveness of rate cuts and excess liquidity (on delivering the growth bang) is incrementally diminishing in a scenario of rising credit risk aversion (among lenders).”
The first official mentioned above admitted that the “disbursal and sanction mismatch” was a matter of concern to the government, which is examining the matter.
The government’s relief packages are meant to provide temporary support and help in kickstarting the economy, said DK Srivastava, chief policy advisor at EY India.
“Growth calls for a straight-forward push to demand, particularly investment demand. To kickstart this, it is the government’s capital expenditure that should play a pivotal role. By augmenting this, private investment would also increase through multiplier effects,” he said.
According to officials, the cash-strapped government is not in favour of raising taxes on non-essential items as that could further depress demand.
Although dwindling Goods and Services Tax (GST) revenue is a concern for both the Centre and states, the Union government is not in favour of raising taxes on non-essential items because that could be detrimental for demand generation, the first official said.
The government has not yet released the monthly GST collection data for April, which is expected to be one-third of the March collection (Rs 97,597 crore) because economic activity was negligible during the lockdown period. GST collections had exceeded Rs 1 lakh crore for four consecutive months since November 2019.
The GST Council is expected to meet in June to discuss a sharp decline in revenue collection and could also consider raising money from the market to compensate states for their revenue shortfall, the other two officials said.
They said the economy had been battered by a prolonged lockdown since March and its revival needs a series of booster doses.
“The first round of announcements worth over ₹20 lakh crore was completed just on May 17. This is not all. There are more to come depending on how the economy respond to the stimulus already announced,”one of the officials said.
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