Stimulus package: Govt may stick to Rs 12-trillion market borrowing target

Fertiliser subsidy will be biggest cost head at Rs 65,000 crore. Housing for all under PM Awas Yojana will cost an extra Rs 18,000 cr

The stimulus package announced on Thursday may cost the exchequer Rs 1.19 trillion in the current financial year (FY21).

The amount will be spent under eight heads — housing for all in urban areas, rural employment, research and development grant for Covid-19 vaccine, industrial and domestic equipment incentives, support for EXIM Bank, fertiliser subsidy, equity infusion in the National Investment and Infrastructure Fund (NIIF) and employment scheme.

Fertiliser subsidy will be the biggest cost, at Rs 65,000 crore, while housing for all in urban areas under the PM Awas Yojana will cost an extra Rs 18,000 crore.

“Overall, we peg the fiscal cost of today's announcement at a modest Rs 1.2 trillion, which is dominated by the enhancement in the outlay for fertiliser subsidies,” said Aditi Nayar, principal economist at ICRA.

Domestic defence equipment manufacturing and industrial incentives will cost Rs 10,200 crore, while an almost equal amount would be borne for boosting rural employment.

The remaining Rs 16,000 crore would be spent on equity infusion in the NIIF debt platform, the employment scheme, support for Exim bank and R&D grant for the Covid vaccine.

Besides these heads, Rs 1.46 trillion of outlay was announced under the production-linked incentive scheme for ten sectors, which will be spent over a period of five years. 

This leaves Rs 29,000 crore for FY21 if one assumes that only 20 per cent will be spent in the year, which itself is quite ambitious given the fact that less than four months are left for the fiscal year to end, say experts. 

If that is also taken into account, the fiscal cost will rise to Rs 1.48 trillion in the current financial year for  the packages announced on Wednesday and Thursday.

Economic Affairs Secretary Tarun Bajaj said the additional expenditure will not force the government to go for market borrowings beyond the Rs 12 trillion already announced.   

Earlier, the government had received Parliament nod for Rs 1.67 trillion of extra expenditure in FY21. It remains to be seen how much additional spend will now be sought from Parliament as some of it has been offset by commensurate savings under other heads.

While the government says it had announced a stimulus of around Rs 13 trillion in the first two announcements, economists pegged the fiscal cost at around Rs 2 trillion.

Together with the Reserve Bank of India’s  measures, the government says it has announced Rs 29.87 trillion in stimulus till now, which is about 15 per cent of India’s gross domestic product. 

Of this, RBI's measures constituted 6 per cent of GDP and the government's 9 per cent, said Finance Minister Nirmala Sitharaman.

Nayar said notwithstanding the robust reform momentum and stimulus announcement so far, the government spending lost momentum in the second quarter of FY21. 

The total expenditure of the government contracted by 13.5 per cent year-on-year in Q2 after having expanded by 13.1 per cent in the first one.