Aatmanirbhar Bharat 3.0: Impact is Rs 1.5 lakh crore versus govt claim of Rs 2.65 lakh crore

Finance Minister Nirmala Sitharaman (File image: Reuters)

Finance Minister Nirmala Sitharaman said that the size of ‘Aatmanirbhar Bharat 3.0’ package, announced on November 12, amounted to Rs 2.65 lakh crore. However, calculations by Moneycontrol and by independent analysts show that it may not be more than Rs 1.5 lakh crore.

A primary reason for this is the Rs 1.45 lakh crore production-linked incentive scheme for 10 sectors, which was cleared by the Union Cabinet on Wednesday, but included by Sitharaman as part of her stimulus announcements a day later.

The Rs 1.45 lakh crore will be spent over a period of five years. The cost will come to a bit over Rs 29,000 crore in 2020-21 if one assumes that only 20 percent will be spent in the current financial year. That in itself is quite ambitious given the fact that less than four months are left for the year to be over.

If you remove that from the headline number of Rs 2.65 lakh crore, the rest will be spent under eight heads: housing for all in urban areas, rural employment, research and development grant for COVID vaccine, industrial and domestic equipment incentives, support for EXIM Bank, fertiliser subsidy, equity infusion in the National Investment and Infrastructure Fund (NIIF) and employment scheme.

Economic Affairs Secretary Tarun Bajaj told Moneycontrol that the additional expenditure will not lead to extra borrowing for now, and that the Centre is borrowing as per the existing plan of Rs 12 lakh crore.

"Overall, we peg the fiscal cost of today's announcement at a modest Rs 1.2 trillion, which is dominated by the enhancement in the outlay for fertiliser subsidies," Aditi Nayar, principal economist at ICRA said.

Soumya Kanti Ghosh, Chief Economic Advisor of State Bank of India, said that the fiscal impact from Thursday’s announcements will be less than Rs 1.5 lakh crore.

“India Ratings expects fiscal impact of ‘Atmanirbhar Bharat Package 3’ to be Rs 1 lakh crore. Major part of this package is on boost for production-linked incentives which is likely to be over a period of time. The fiscal impact of this is estimated at around 0.5 per cent of GDP in FY21,” said Devendra Pant, Chief Economist with India Ratings.

Pant said the production-linked incentives will mainly be in the form of concessions for increasing investment in the economy and could come from future revenue forgone instead of spending outlay and hence unlikely to have a fiscal impact from the increased expenditure.

From Thursday’s announcements, the one that will hit the exchequer the most is the additional fertiliser subsidy outlay of Rs 65,000 crore. As things stand, this would take fertiliser subsidy spending for the year to upwards of Rs 1.36 lakh crore.

The housing for all for urban areas under the PM Awas Yojana will cost extra Rs 18,000 crore. Domestic defence equipment manufacturing and industrial incentives will cost Rs 10,200 crore, while almost equal amount at Rs 10,000 crore would be borne for boosting rural employment.

The remaining Rs 16,000 crore would be spent on equity infusion for NIIF debt platform, employment scheme, support for EXIM bank and grant for research and development for COVID vaccine.

Together with RBI measures, the government claimed that it has given Rs 29.87 lakh crore as stimulus till now which is around 15 percent of India's gross domestic product. Of this, the RBI's measures constituted six percent of GDP and the government's nine percent, Sitharaman said.