India′s stimulus 3.0 supportive for growth, fiscal impact unclear: Fitch Solutions

India′s stimulus 3.0 supportive for growth, fiscal impact unclear: Fitch Solutions
India′s stimulus 3.0 supportive for growth, fiscal impact unclear: Fitch Solutions

Fitch Solutions said the schemes recently announced by the Centre to boost the employment, credit and manufacturing sectors would be supportive to India′s economic rebound over the coming quarters, however, the actual impact on public finances is difficult to ascertain.

"While many of these schemes should be supportive to India′s economic rebound over the coming quarters, the actual impact on public finances is difficult to ascertain. For example, the PLIs (Production-Linked Incentive) will span across a five-year period and their fiscal impact will likely only be seen from FY2021/22 onward," an official statement from Fitch Solutions stated. "We maintain our forecast for a central fiscal deficit of 7.8 per cent of GDP in FY2020/21, which already accounts for more central government borrowing than is currently been targeted at Rs 13 trillion," Fitch Solutions added.

The Union Cabinet on Wednesday approved PLI scheme in 10 key sectors including pharmaceutical drugs and automobiles and auto components to enhance India′s manufacturing capabilities and export.

The approved financial outlay for the 10 sectors over five-year period is Rs 1,45,980 crore.

"Estimating using the outright fiscal outlays from this announcement, ′Stimulus 3.0′ appears to suggest additional expenditure of Rs 1 trn (0.44 per cent of FY2019/20 GDP), not including EPFO subsidies. Moreover, the announcement did not outline any additional borrowing to finance these additional spending, which suggests a reallocation of FY2020/21 budget expenditure plans instead," stated Fitch Solutions. Union Minister Prakash Javadekar earlier said the PLI scheme will also help in creating jobs.

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