Rs265,000 crore is a hefty outlay in tough times
One may be tempted to compare the size of the Stimulus outlay to other countries, but that is an odious comparison. The Atma Nirbhar 3.0 outlay itself is Rs265,000cr. One can argue that this includes Rs146,000cr of PLI (production linked incentives), but all these are outlays nevertheless. If you include the latest stimulus, the total government directed stimulus is now close to Rs30 trillion. It is hard to dispute that $400 billion allocation to boost growth in the midst of macroeconomic challenges is a lot of money.
In a way, the government had little choice. Obviously, the rating agencies want the Indian economy to grow rapidly without hurting the fiscal deficit, but that is not how the real world works. The Indian government lives in a real world and from that perspective, this stimulus was called for. It is in this background that the Atma Nirbhar 3.0 must be looked at.
Atma Nirbhar 3.0 – what it entails
|Specific Allocation||Total Outlay (Rs in crore)|
|Prime Minister Awas Yojana (Housing)||18,000|
|COVID Vaccine R&D Grant||900|
|Stimulus for Industry||10,200|
|EXIM Bank support for Exports||3,000|
|Product Linked Incentives (PLI)||146,000|
|Fertilizer Subsidy for farmers||65,000|
|Equity for Infrastructure||6,000|
|Bharat Rozgar Yojana||6,000|
The press conference dwelt at length on the nuances of what had been done in the past but that is well documented. Also, if you look at the way high frequency indicators like IIP, PMI and core sector growth have turned around in recent months; the stimulus is surely doing its job. Here are some key takeaways from Stimulus 3.0.
• The government has provided an additional Rs18,000cr for the housing boost under PMAY. This scheme entails the construction of 1.08cr houses of which nearly 35% have been completed. The additional allocation is considering that this scheme has already provided 545cr man-days of work.
• Ensuring credit to MSME has been a big challenge in tough times. The ECLGS scheme announced in May-20 has been extended till Mar-21. A total of 26 stressed sectors identified by the Kamath Committee have been identified for additional support.
• The PM Garib Kalyan Yojana also gets an additional Rs10,000cr apart from the Rs37,543cr already spent. This was aimed at returning migrant labour at the peak of COVID-19 pandemic. This includes water conservation structures, rural houses, cattle sheds, farm ponds etc.
• The government gave shape to the Production Linked Incentive (PLI) scheme. Out of the total outlay of Rs146,000cr, the biggest outlay of Rs40,955cr will go to the electronics industry. Apart from the original list including APIs and medical devices, the government added 10 new categories including cell batteries, textiles, networking products, solar PV modules, LED, specialty steel etc.
• Infrastructure is critical if the outsourcing dream has to be achieved. The outlay includes Rs6,000cr infusion of equity into the NIIF Debt Platform. This will enable the fund to raise up to Rs95,000cr in debt; enough to give an impetus to infra projects. This push to infrastructure will also give an indirect boost to job creation as well as demand for critical inputs like steel, cement and have a multiplier effect.
• The second big allocation after the PLI scheme was the Rs65,000cr allocation to providing fertilizer subsidies to farmers. This scheme is expected to benefit close to 14 crore farmers across India. This also includes a fertilizer cash subsidy of Rs5000 per year per farmer payable in two equal tranches for Kharif and Rabi crops.
• The Rs900cr allocation for COVID vaccine research may not be substantial but it is a good step in that direction. It gives the Department of Biotechnology room to start thinking on those lines. Russia does most research at a fraction of the West’s cost.
Pump priming versus fiscal discipline
According to SBI Research, the current fiscal deficit estimate is already at Rs17.8 trillion. The fiscal allocation of Rs1.50 trillion in Stimulus 3.0 will take the total fiscal deficit for FY21 to Rs19.30 trillion. That translates into fiscal deficit ratio of 10.3% of GDP, considering that the GDP is expected to be lower this year. That is surely not a comfortable position to find the economy in.
For the Indian economy, it's more like a Hobson’s choice. There is no point in any economic debate if growth does not revive and demand does not recover beyond pre-COVID levels. Certainly, Stimulus 3.0 was a tough fiscal choice, but essential nevertheless!