Given that the virus lockdown
came closely following a weak growth trajectory, Acuite believes that a contraction in GDP in Q1FY21 aside, there is a significant downside risk to the growth estimates of 2-3 per cent for FY21 without the stimulus package.
"Ideally, we would like the government to opt for a stimulus package of Rs. 11.2 trillion ($150 billion), the economic loss that is already set to be recorded for the current lockdown
period and that will tantamount to 4.8 per cent of FY20 GDP," the report said.
"However, in our opinion, it is not so much the size of the package but its effectiveness that will be the key to a healthy revival of the economy by H2 FY21. The stimulus should primarily focus on maintaining productive government expenditure including capital expenditure to the extent possible, given the latter's ability to push up growth," it added.
With limited fiscal resources with the government, Acuite has suggested that the burden should be shared between the Centre, RBI and the states.
The rating agency also said that guarantees or loss reimbursement facilities need to be provided to banks. They also estimated that an amount of Rs 1.8 trillion additional working capital funds will be required by MSMEs and another Rs 1.2 trillion for corporates in relatively vulnerable sectors.
Given the extraordinary nature of the global economic and health crisis sparked by Covid-19, there is adequate justification to raise debt or finance the deficit directly from RBI at this juncture albeit within specified limits.
"In order to ensure that the interest obligations on such additional off-market borrowings are not unsustainable, the feasibility of a special one-time issuance of special zero-coupon securities by both the Central and the state governments to RBI can be explored. If the entire proposed stimulus amount of Rs 11.2 trillion is raised through this route, there will be a sharp growth in the balance sheet of RBI to the extent of 47 per cent as compared to the average growth of 22-24 per cent," Suman Chowdhury, Chief Analytical Officer, Acuite Ratings said.