Revenue contraction due to COVID-19 linked lockdown amid a slowing economy would force state governments to borrow more and hence will have a higher fiscal deficit. Despite strong pressure from India Inc for large fiscal stimulus, the Modi government has primarily relied on loan guarantees and liquidity support as there is little room to relax fiscal deficit target without inviting rating downgrade.
The overall package consists of three primary components – a set of measures taken by the government before Modi’s speech on May 12, the Reserve Bank of India’s liquidity measures over the last two months, and the five tranches announced by Nirmala Sitharaman over the last few days. By the government’s calculations, the package comes out to Rs 20.97 lakh crore.
Even though the announcements made are worth over Rs 20 lakh crore, the actual cash outlay by the government this year and the impact on the fiscal deficit will be far less. This is because many of the government’s proposals are credit-focused or are aimed at easing liquidity concerns for many affected sectors. In some of these cases, any costs incurred will be initially covered through banks or other financial institutions and thus not result in actual cash outgo by the Centre. Other initiatives, particularly those made in Tranche 3, may only be ramped up over an unknown period of time and therefore may not be fully relevant for the fiscal deficit calculations this year.
It is when the SCB’s which grant Loans on behalf of Atmanirbhar Bharat do a third party Insurance of the Tranches of Loans given, SCBs pay a premium to the third party, and in case of default, the money is given by the third party to the SCBs. A simple* Credit Default Swap* or
*Collateralised Debt Obligations * by the SCBs goes a long way.
The One Percent of GDP Expenditure on Atmanirbhar Bharat results in 2.45 percent on GDP return back to the Government as the GDP Multiplier on Expenditure on Autonomous Capital Productive Expenditure is 2.45 of Indian Governments via Indian Banking led productive lending.
