RBI’s ₹1.76 lakh crore bounty to government likely to widen stimulus scope

While announcing the first stimulus package to revive growth on Friday, finance minister Nirmala Sitharaman said that it was “only the start” and one more set of announcements, focused on the sluggish real estate sector, would be announced this week.

The promised second instalment of a stimulus package to boost the economy that was to be announced by the middle of this week may be delayed “a bit” as the government is reworking and expanding it after receiving a windfall gain in the form of a transfer of dividend and surplus by the Reserve Bank of India (RBI) on Monday, two government officials said on condition of anonymity.

The government is reassessing available resources in the light of RBI’s move to transfer ₹1.76 lakh crore in 2019-20, an official said.(Mint File Photo)

This instalment was supposed to focus on reviving the real estate sector. It could now expand its focus to textiles, infrastructure and tourism, and even consider tax incentives, maybe even a reduction in the Goods and Services Tax (GST) rate on automobiles, a demand voiced by the auto industry.

“The government is considering expanding the package to go beyond the real estate sector to include other sectors that are facing a slowdown,” one of the two officials cited above said.

While announcing the first stimulus package to revive growth on Friday, finance minister Nirmala Sitharaman said that it was “only the start” and one more set of announcements, focused on the sluggish real estate sector, would be announced this week.

 

The government is reassessing available resources in the light of RBI’s move to transfer ₹1.76 lakh crore in 2019-20 (the money was transferred as of Monday, media reports said), and is reworking a more comprehensive second package to boost the economy that could be announced by the end of this week or next week, the officials said.

Sitharaman said in Pune that the government is yet to decide how to utilise the money. The ₹1.76 lakh crore the government has received from RBI is double the budgeted amount of ₹90,000 crore it hoped to. Part of this surplus will certainly be spent on the revival of the economy, the officials added.

HT learns that among the things being considered are capital investments and fiscal incentives to sectors such as real estate, textiles, infrastructure and tourism. There’s also an argument that the government should keep some of the money as a cushion for any exigency, for example any slippage in revenue collection, the officials said.

The money will give the government the confidence that it can meet the fiscal deficit target of 3.3% of gross domestic product in the current financial year, they added. The first official said that the indirect tax collection in the current month is around ₹90,000 crore as on date, and unlikely to touch the ₹1 lakh crore mark, an impact of the current slowdown.

The Indian economy grew by 5.8%, the slowest in five years, in the January-March quarter of 2018-19. GDP growth has declined consistently since last year. The auto sector, a weathervane of economic sentiment and also industrial health, has been especially hard hit with passenger car sales in July falling 30% compared to a year ago.

Officials said a final decision on the prudent use of the surplus from the RBI will be taken soon by the finance minister in consultation with top bureaucrats. The decision will be announced after consultation with the Prime Minister’s Office (PMO), the officials added.

Some experts in the government are not in favour of using the money for tax sops and instead want it to be used for capital investments.

Pronab Sen, India’s former chief statistician, said, “RBI’s ₹90,000 crore was already budgeted, so ₹86,000 crore is left [surplus]. Out of this, about ₹54,000 crore is coming from the capital reserve, which will not be available the next year. Under these circumstances, it is not prudent to make current expenditure, because the same resources will not be available next year”.

Niranjan Hiranandani, president of the National Real Estate Development Council (NAREDCO), said that the stimulus package announced by the finance ministry on Friday would “infuse much required liquidity” in the system that will also help the real estate sector, but the government should create a fund to bail out stressed companies.

“It doesn’t matter if it [the announcement] is delayed by a day or two. Even one-week delay will not make any difference. But, there is an urgent need to create a stressed fund to clear about 3 lakh incomplete projects in NCR {National Capital Region} alone as these projects are stuck due to fund crunch and banks are unwilling to lend,” he said.