#Economic Package : It Lacks In Addressing The Immediate concerns Of The Economy – Fitch Solutions

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Fitch Solutions has expressed their apprehension on the Modi government’s Rs 20.97 lakh crore Covid-19 package. It says that the package lacks in addressing immediate concerns of the economy as the actual fiscal impact of the additional stimulus is only about 1 per cent of GDP as opposed to the claim of 10 per cent.

The contents of the package were broad-based and announced in five tranches.

“About half of the package amount covers fiscal measures that had previously been announced and also include the estimated economic impact of monetary stimulus from the Reserve Bank of India (RBI),” Fitch Solutions said in a note in a report by a news agency.

The rating agency said a seeming reluctance for fiscal expansion by the central government amid the COVID-19 crisis in India also poses a significant downside risk to its 1.8 per cent growth forecast for 2020-21 fiscal.

“India’s economic crisis is growing increasingly dire due to surging COVID-19 infections and weak demand both domestically and externally. We believe that every delay to effective government stimulus will only deepen the downturn, which will eventually require even more spending to lift the economy out of the doldrums, which could see the deficit come in wider,” it said.

The new fiscal stimulus announced between May 13 and May 17 is “made up of the government loan guarantees, credit extensions to be led by banks, and regulatory amendments,” it said.

The new spending will only amount to about 1 per cent of GDP, which would take India’s total central government COVID-19 fiscal response to-date to only 1.8 per cent of GDP, it said.

“We see the package as being lacking in addressing the immediate concerns of the economy and have revised our central and combined deficit forecasts for FY2020/21 (April-March) to 7 per cent and 11 per cent of GDP respectively, from 6.2 per cent and 9 per cent previously,” the rating agency said.

In his reaction, Senior Congress leader and former Finance Minister P Chidambaram had earlier tweeted his disappointment over the package that was announced by the government