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Home / Business News / Govt suggests more boosters on the anvil for the economy

Govt suggests more boosters on the anvil for the economy

The new incentives will be targeted at sectors that were hit hard by Covid-19.

business Updated: Oct 14, 2020, 05:55 IST
Rajeev Jayaswal
Rajeev Jayaswal
Hindustan Times, New Delhi
A commuter walks past the building of India's Ministry of Finance during dusk in New Delhi.
A commuter walks past the building of India's Ministry of Finance during dusk in New Delhi. (REUTERS)

The Narendra Modi government is considering a third economic stimulus package, combining fiscal and policy measures that could include incentives for the manufacturing and services sectors, income support for the jobless and incentives to people to spend instead of keeping their money in the bank, according to two officials aware of the plan.

On Monday, finance minister Nirmala Sitharaman unveiled a demand stimulus package consisting of ₹73,000 crore in public expenditure by March 31, 2021.

These included allowing government employees to spend tax-exempt leave travel allowances on goods and services, special festival advances and 50-year soft loans to states for capital investments.

 

The new incentives in the works will be targeted at sectors such as tourism and hospitality that have been hit hard by the Covid-19 pandemic, the two officials cited above said on condition of anonymity.

“Yesterday [Monday], we announced some measures to stimulate demand, and we are not closing the option of another stimulus,” a high-ranking official said, declining to disclose details

The second official said a third stimulus package is a work in progress and it will be unveiled at an opportune time when fiscal measures will have the maximum impact in engineering an economic revival. Economic growth is expected to contract 9.5% this fiscal year, the Reserve Bank of India’s monetary policy committee said last week.

“For example, prospects of services sector will look up as adverse impact of Covid-19 recedes and the sector will need some stimulus,” the official said. According to the official, the third stimulus could be announced before Budget 2021-22, which is expected to be presented on February 1 next year. “The government has fiscal space, and if required borrowing limit could be enhanced from ₹12 lakh crore, provided additional funds will spur growth,” the official said.

The government has already raised its borrowing limit to provide a ₹20.97 lakh crore economic stimulus between March and May this year.

On May 8, the government raised its gross market borrowing target for the 2020-21 financial year to ₹12 lakh crore from ₹7.8 lakh crore budgeted in February. The limit was increased to combat the pandemic and boost growth, which contracted by a record 23.9% in the June quarter.

The government is also considering a series of measures to boost the economy that includes up to ₹3 lakh crore of incentives spread over six years to create global supply chains in select sectors, tariff protection to key industries, policy reforms to attract foreign direct investment (FDI) and schemes to benefit jobless urban residents, the official said

Divakar Vijayasarathy, founder and managing partner at consulting firm DVS Advisors LLP, said: “The contraction of GDP of the first quarter and the RBI’s estimate of real GDP shrinking by 9.5% has definitely made the government ponder and it has rightfully announced demand-side measures... the impact of Covid and rising inflation definitely call for more fiscal stimulus to trigger growth.”

“The government, without any further delay, should bite the bullet without too much concern on the fiscal deficit. Any borrowing rightfully used would definitely add value,” Vijayasarathy added.

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