FM's Day 2 package: Govt's immediate fiscal cost will be close to Rs 10K cr

CII delegation recommended widening the fiscal deficit by 0.5-0.75 percentage points
Of the Rs 3.16-trillion package announced by Finance Minister Nirmala Sitharaman on Thursday, the Centre’s immediate fiscal cost will be close to Rs 10,000 crore, a top government official told Business Standard.

The Centre’s direct spending vis-à-vis the second round of announcements will include Rs 3,500 crore on providing free foodgrain to 80 million migrants for two months and Rs 1,500 crore interest subvention on Mudra loans below Rs 50,000. Sitharaman specified these two points.

What she did not mention was that Rs 4,500-5,000 crore would be immediately released by the Centre for the credit-linked subsidy scheme (CLSS) for middle-income groups to enable them to buy affordable housing. The scheme has been extended by a year to March 31, 2021. Sitharaman said it would lead to investment of over Rs 70,000 crore in housing.

“We will immediately release Rs 4,500-5,000 crore to banks for the CLSS,” the official said after the finance minister’s briefing.
The official added that while these were the immediate fiscal costs, all the credit schemes of Wednesday and Thursday on which the government would be providing guarantee might become a future liability for the Centre.

Analysts across the board calculated the immediate fiscal impact of Thursday’s announcements at around Rs 5,000 crore. However, there is a greater disagreement on the fiscal impact from Wednesday’s announcements worth Rs 5.9 trillion. While Soumya Kanti Ghosh, chief economic advisor, State Bank of India, pegged it at Rs 41,500 crore, Ranen Banerjee of PwC India estimated it at slightly less than Rs 20,000 crore.

The official quoted above said the Centre’s fiscal impact, not counting the future liabilities, from Wednesday’s measures, were close to Rs 40,000 crore.

What all analysts agree on is that given the Centre’s fiscal situation, it had no choice but to announce the bulk of measures on liquidity and credit front, while keeping its own outlay at a minimum.

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