India Inc unimpressed by FM’s booster dose2 min read . Updated: 13 Oct 2020, 08:28 AM IST
- Corporates believe the govt’s capex push will have a limited impact on boosting economic activity
India Inc. was unimpressed with finance minister Nirmala Sitharaman’s additional budget allocation of ₹25,000 crore towards government-driven capital expenditure and an additional ₹12,000 crore in loans to states. While states can tap these funds for new or ongoing projects or clear contractor dues, corporates believe the steps will have a limited impact on boosting economic activity.
“ ₹25,000 crore is not a substantial figure, and while this is a welcome announcement, it barely scratches the surface of the kind of stimulus the economy needs right now," said a senior analyst in the road sector. “States have huge bills to pay off and it will be interesting to see where they choose to deploy these funds; which projects take priority. This may be helpful for contractors on government work in Andhra Pradesh, Telangana and Rajasthan, where the states have racked up huge bills, that they are unable to pay. What the government has indicated with this limited stimulus is that it is prioritizing keeping a cap on the fiscal deficit."
“The ₹12,000 crore that has been allotted to the states that would be repaid over 50 years without any interest may be useful in completing stalled projects," Barclays said in a report. “However, as it is linked to completion before March 2021, so only a smaller proportion may flow to new projects."
Credit rating agency Icra Ltd has estimated that states will have to cut their capital expenditure by ₹1-3.4 trillion in FY21, despite additional borrowings, because of revenue deficits and shortfalls in GST compensation. Against this gap, an infrastructure project consultant says a funding line of ₹12,000 crore will make little difference.
“The total fiscal impact of the measures announced (including the cash voucher and festival advance schemes) is likely to be ₹41,000 crore (0.2% of GDP) in FY21, which is small and reflects the government’s prioritization of fiscal prudence," Nomura said in a report.
“Overall, the amount of demand stimulus is underwhelming. With the previous rounds of budgetary fiscal support around 1% of GDP, Monday’s demand stimulus measures take total fiscal support (on the budget) to about 1.2% of GDP, which is small compared with the size of the growth hit and reflects India’s weak fiscal starting position. We expect the central government’s fiscal deficit to widen to 8.2% of GDP in FY21, versus the budgeted target of 3.5%, but mainly reflecting lower revenues. With limited fiscal space to support growth, monetary policy is likely to continue doing the heavy lifting in India."