Centre preps stimulus 3.0 to kickstart the economy

Days after Union finance minister Nirmala Sitharaman said the option of another fiscal stimulus for the current financial year remains open, a top aide said the ministry is working on such a package.

“The finance minister, in her interaction a day ago, has mentioned that (about increasing government expenditure). She has told us to work on that, and we are actually working on that,” economic affairs secretary Tarun Bajaj said on Wednesday. “Based on the various suggestions that we have received from all of you (industry leaders), we will be working on it and will try to do something on this front as well so that the push to the economy, which is very much needed in these stressful times, is provided,” he said at a webinar organized by industry lobby Confederation of Indian Industry, or CII.

Speaking at the virtual launch of 15th Finance Commission chairman N.K. Singh’s autobiography, Sitharaman on Monday said she has not closed the option for another stimulus package.

While the finance ministry has announced two stimulus packages totalling about 1.5% of GDP—the Atmanirbhar Bharat Yojana in May and the latest one last week—critics have pointed out the government’s cautious fiscal response to the coronavirus-induced recession compared to India’s peers and other large countries.

On 12 October, the finance minister announced a stimulus package worth ₹46,675 crore, including incentives for central government employees to spend more on consumer durables during the festive season and higher capital expenditure for both the Centre and states. Rating agency Moody’s last week said the measures worth 0.2% of GDP will provide only limited support to growth and highlight the “very weak fiscal position” of the government.

Bajaj said while the government has begun the budget-making exercise for the next fiscal, it is still looking at the extra requirement for expenditure for various sectors. “We have mentioned it to the departments to push such capital expenditure that has a multiplier effect. If there is more money needed, we would be providing that in our revised estimates. The challenge obviously now is to ensure that the departments that are responsible for infra spend actually spend this money,” Bajaj said.

Madan Sabnavis, chief economist at Care Ratings, said any stimulus from the government hereon is more likely to be in the realm of specific policies relating to sectors rather than a measure which affects revenue or expenditure. “As we are seven months through the year, and preparations are on for the next year’s budget, it is likely that any measure will be fiscally neutral,” he added.

The finance ministry began the budget-making process for FY22 on 16 October with pre-budget meetings with ministries and departments. This will be the third budget of finance minister Nirmala Sitharaman and eighth of the Narendra Modi government.