Nirmala Sitharaman, India’s finance minister, wears a protective mask while speaking during a news conference in New Delhi, India. (Photographer. T. Narayan/Bloomberg)
5 years ago
Oct 12, 2020
Nirmala Sitharaman Live: Catch all updates from the Finance Minister's briefing on economic issues, here.
The demand stimulus announced, if realised fully, is unlikely to bring a major change in the economy to boost demand.
For states, The announcements are unlikely to spur capex but the states could use the funds on existing projects and to settle pending bills.
Radhika Rao, Economist, DBS Bank
Today’s announcements carry a prudent intent to boost consumption, whilst also being spending-lite so not to put additional burden on the exchequer.
In addition to government employees, the boost to demand can be more material if the private sector also takes cue and mirrors some of the benefits announced by the Finance Ministry.
Sameer Narang, Chief Economist, Bank of Baroda
The amount of the stimulus remains low but the announcements are nevertheless a step in the right direction and will bring some benefits.
The announcements for government employees will lead to front loading of some of the expenditure and will translate into some spending.
Rajni Thakur, Economist, RBL Bank
While the markets are more concerned about where the money comes from, today’s announcements are unlikely to impact the central governments balance sheets by much.
The stimulus is too small and unlikely to have an impact of spending but funding for states could push some projects into the pipelines.
“We want to now give a new thrust for the capital expenditure, both for the states and the center”, Sitharaman said, pointing out that capital expenditure has a higher multiplier effect and more sustainable debt in the longterm.
The factor that makes the schemes attractive is that employees' LTC benefit will lapse and they can use the money to spend ahead of the festive season, she said.
There is no gain in saying that the pandemic has affected the economy, Finance Minister Nirmala Sitharaman said, opening the press address. The ministry has come up with “proposals”to stimulate demand in the economy first via consumer spending and then by capital expenditure, she said.
“The proposals have been designed to stimulate demand in a fiscally prudent way by front loading some expenditure,” she said.
Sitharaman will hold another press conference later in the day after heading the 43rd Goods and Services Tax meeting via video conferencing.
India’s gross domestic product contracted nearly by a quarter in the quarter ended June as the economy was shut for over two months as the virus infected lakhs of people and claimed the lives of thousands. The country is now headed for a rare annual contraction for the first time in over a decade. The Reserve Bank of India expects growth to fall 9.5% for the financial year.
