India's economic stimulus package worth Rs 20 lakh crore has fallen short of achieving what intended to do and proved to be a “lost opportunity”, global securities research firm Sanford Bernstein said. “While the package started on important aspects but the need to announce measures that add up to this top down number, made the entire package aimless, with several generic announcements which should ideally, have been a part of a normal economic agenda. Overall, we see it as a lost opportunity,” Bernstein said in a May 17 report on Asia-Pacific Equity Strategy.
India’s desire to announce a large economic package, something that shows the world that it cares about the economy and is willing to match global stimulus numbers, was perhaps the driver for the claim of a large package, the firm added. Further, it said that not much was discussed on land, labour reforms, tax rationalisation or on any coherent plan to invite foreign manufacturing. “The government’s defence indigenisation plan is not new and has been poorly executed in the past and that is also the case with commercial mining for coal. APMC (amendment) plans are good but also need support from states. The discom plan is insufficient,” the firm pointed out.
The report gave a clear break up of the proportion of fiscal and monetary measures in the stimulus package. Of the overall $280 billion, credit guarantees were around $62billion and liquidity support from the Reserve Bank of India (RBI) around $108 billion. Government programmes of $173 billion includes $132 billion of loans, $24 billion of fiscal support and rest largely for food grains etc.
“India does not have fiscal buffers, hence a large fiscal stimulus would have been a bold bet–as that could have impacted ratings and currency, if not executed properly. The government has hence taken an easier path,” it said.
While the headline number is huge, the actual government spending remains small with the RBI’s earlier measures forming the biggest part. Even then, Bernstein said some of the sectoral choices in the package were “perplexing”. The focus, the note said, should have been on urban, corporates, consumption, infrastructure and other impacted sectors. Instead, the government focused on the rural economy and a “strange end market” like a space program. “Rural is in control, as farm incomes are protected (good harvest season and a good start to summer crop sowing). Yet, several measures (in the form of loans) were announced for agri, some of which are already existing programmes.”
The Bernstein report, however, appreciated measures taken for micro, small and medium enterprises (MSMEs) such as credit guarantees for fresh credit to support a sector that employs large workforce. For investors, AB Bernstein said the package was unlikely to move the needle. “Equity markets are likely to be less enthused with the package as it is less likely to support the economy in the near/medium term.”
