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The stimulus measures announced by the Finance Minister on Monday starkly show the paucity of fiscal resources.
Although the headline number is an impressive Rs 6.3 lakh crore, a good chunk of this is credit guarantees. The actual cash outgo will be less than Rs 1.5 lakh crore.
These announcements follow the Aatmanirbhar Bharat scheme playbook, which we saw in 2020. The bulk of the measures is focussed on easing access to credit. They are also mostly off the government’s balance sheet – unless the credit guarantees are invoked.
The reason for such low extra spending is because the Centre’s fiscal deficit is budgeted at 6.8 percent of GDP this financial year. Even that number might be an understatement, some economists say. June quarter revenues could take a hit owing to the second wave, while disinvestment revenues remain a pie in the sky.
The government would also be chary of adding to inflationary pressures, which in turn would make the task of maintaining an accommodative monetary policy more difficult for RBI.
That said, any stimulus measure aimed at boosting demand would be more successful only after a large part of the population is vaccinated, argues Manas Chakravarty here.
For now, will businesses come forward and take loans when consumer sentiment is weak? The jury is out on that.
Do check out these investing insights from our research team:
The government’s support to the microfinance sector won’t change its fortunes
Power Grid: Promising outlook backed by earnings growth and cash flow
Mishra Dhatu Nigam: Will growth return with capex completion in FY22?
IGL: Quality gas play at a premium
What else are we reading today?
The Green Pivot | How Hero, Bajaj and TVS are preparing for EV competition
Economic Recovery Tracker | Recovery builds up as lockdowns ease
Invoking personal guarantees of promoters is easier said than done
Steel sector valuations have to pass the China stress test
GuruSpeak | Pawan Arora—It takes a different kind of mental strength to sustain a series of losses for the sake of the one big blockbuster win
The hunt for a coronavirus super shot (Republished from the FT)
Top commodity traders pile into the energy transition (Republished from the FT)
Technical picks : Crompton, Tata Steel, Bank Nifty and Biocon