Policy announcements today were directed at boosting economic growth, healthcare facilities and to contain the livelihood implications of the pandemic. Some schemes were new while others were extensions / enhancements of previous measures. The measures also attempt to push credit to the most needy sectors of the economy that face the brunt of the pandemic. As these measures lack efforts to boost consumption, we retain real GDP growth for FY22 at 8.6%.
Credit guarantees remain at the center of measures announced: However, the credit guarantees do not tantamount to any actual fiscal outlay and will have to be provided for only when the guarantees are revoked. Under this head the government announced the following:
- Health: Earmarked INR500 bn guarantee cover for expansion (at 50%)/new projects (at 75%) for 3 years with interest rate capped at 7.95%. For Aspirational Districts, guarantee cover of 75% for new projects/expansion.
- Earmarked INR600bn for sectors other than health affected by COVID with interest capped at 8.25%.
- ECLGS: Overall cap of admissible guarantee to be raised from INR3trn to INR4.5trn; admissible guarantee and loan amount to be increased above the current 20% of outstanding loans.
- Small borrowers: Guarantee for up to 3 years for SCBs for loans to new/existing NBFC-MFIs or MFIs for on lending up to INR1.25lakh to 25 lakh small borrowers (for fresh loans only). Banks to charge interest of MCLR+2% while MFIs can charge an interest at least 2% below maximum rate prescribed by the RBI. This scheme holds significance as all borrowers (including defaulters up to 89 days) will be eligible.
Timelines for some schemes extended due to 2nd wave: In light of the economic disruption caused by the 2nd wave, the government resorted to extending timelines of some of the existing schemes. To boost employment, Atmanirbhar Bharat Rozgar Yojana whereby the government contributes to the EPFO will now be extended by 9 months from 30 June, 2021 to 31 March, 2022. Further, PLI scheme for large scale electronics manufacturing has been extended by one more year, scheme to now end in FY26.
Schemes involving direct fiscal costs: Apart from the above, some schemes announced today would involve a fiscal impact. Additional outlays of INR148bn has been announced for fertilizer subsidy while another INR150bn outlay is announced for healthcare for short-term emergency preparedness (with emphasis on children). Pradhan Mantri Gareeb Kalyan Anna Yojana (PM-GKAY) scheme has also been expanded till November 2021 with a budget outlay of INR939bn. However, we anticipate actual expenditure under the scheme to be restricted to around INR400bn as per estimates provided last year under the supplementary demand for grants for the scheme in FY21.
Our take: The announcements are expected to provide some support to the economy that have been ravaged due to the two COVID-19 waves. It attempts to buffer the bottom pyramids of the economy – both from the production as well as the consumption side. The government lists out financial implications of the measures at INR6290bn. However, some of the schemes are spread out over a number of years and also rely on guarantee structures. Overall, we estimate the direct fiscal outlay from today’s announcements at INR780bn, or 0.35% of the nominal GDP as has been used in the Union Budget FY22. As today’s measures do not involve any direct support to consumption, we retain our real GDP growth estimates for FY22 at 8.6%.
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