Too Little Too Late: Stimulus likely to give marginal boost

New Delhi, Oct 13 (SocialNews.XYZ) Modest funding of Centre's latest demand boosting measures is likely to give a marginal boost to the economy, industry watchers contend.

Accordingly, many have termed these measures as 'too little too less' to pull the economy out of the Covid-induced downturn.

These measures introduced under the Rs 73,000 crore package provides for 'LTC Cash Voucher Scheme', 'Festive Advance' and loans to state governments to spend as capital expenditure.

"The latest measures are meant to encourage spending without fiscal cost to the exchequer. But the schemes have been designed in a way that they might not have much of an impact on boosting the aggregate demand. Attaching strings to the schemes mean they will remain a non-starter," Sunil Kumar Sinha, Principal Economist, India Ratings and Research told IANS.

"The announced LTC scheme and festive advance is putting money in the hands of risk-averse section which has greater propensity to save. Plus the money allocated to states for undertaking capex is too small and unlikely a ccelerate their capex spending. At best it may help states clear their outstanding payments to vendors."

According to Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research: "Given the projected consolidated fiscal deficit of around 12% of the central and the state governments taken together, we believe there are constraints in providing a large fiscal stimulus at this juncture."

"However, the government is making an effort to release some additional funds which will ensure moderately higher private consumption such as the new festival schemes for government employees and also capital expenditure by both the states and the central government."

On the LTC Cash Voucher Scheme', experts described the requirement to buy goods or services worth 3 times the fare and one time the leave encashment before March 31, 2021 as a big turn-off.

Besides, the amount must be spent on goods attracting GST on 12 per cent or more from a GST registered vendor through digital mode and GST invoice will b e required to be produced.

The LTC scheme provides central government employees allowance to travel a "once anywhere in India and once to hometown or twice for hometown visit" in a block of four years.

Air or rail fare, as per pay scale or entitlement, is reimbursed and in addition leave encashment of 10 days (pay and dearness allowance) is paid.

Similarly, the amount earmarked under 'Festive Advance' is likely time be saved rather than spent.

Notably, central government employees number just about 47 lakh or only 8.5 p er cent of organised sector workforce.

On the other hand, in April, the government froze dearness allowance hike fo r central government employees till July 2021 this could also keep demand muted.

"The impact of the schemes intended to spur consumer and capital spending may turn out to be fairly modest," Aditi Nayar, Principal Economist said.

"We anticipate that the LTC and festival advance schemes will result in a temporary boost to consumer sentiment and economic activity, with a sharper pick up in festive season sales that would subsequently fizzle out."

Furthermore, an additional capital expenditure of Rs 25,000 crore by the Centre was announced in addition to providing long term loans to state governments.

"The relatively small magnitude of the long-term loans to be provided by the GoI to the states, is unlikely to provide any meaningful boost to capex in FY2021," Nayar said.

Additionally, Madhavi Arora, Lead Economist, FX and Rates for Edelweiss Securities said: "The effective fiscal outgo led by the new measures announced appears to be around 0.2 to 0.3 per cent of GDP."

"This is not a significant amount and will help marginally in stimulating demand. It needs to be seen if the policy makers have more in the offing. Overall, there is still need for more policy support for effective demand stimulus."

Consequently, the measures announced prior to the festive season might not have much impact on ramping up sales during the peak off-take period in India .

"This will be a muted season. The economy will continue to contract, though less than what was seen in the first quarter," said M. Govinda Rao, Chief Economic Advisor, Brickwork Ratings.

"The amount is far too small to make it significant. In fact, conditions themselves ineffective because funds are fungible. The major deterrent is the uncertain environment in which many people would like to build reserves by saving."

(Rohit Vaid can be contacted at rohit.v@ians.in)

Source: IANS