Stimulus package much smaller than it looks

New Delhi: The central government's Rs 20.97 lakh crore Covid-19 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, Fitch Solutions said on Tuesday.

Prime Minister Narendra Modi on May 12 announced a stimulus package of Rs 20 lakh crore, or nearly 10 per cent of GDP, to deal with the economic fallout of Covid-19. 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.

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.