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  3. Govt’s second round of stimulus to provide limited support to GDP growth: Moody's

Govt’s second round of stimulus to provide limited support to GDP growth: Moody's

16 Oct 2020 Evaluate

Moody's Investors Service in its latest report has said that while the government's second round of stimulus will spur consumer spending over the near term as coronavirus-related restrictions continue to be eased and India's festive season begins, the support to the country’s Gross domestic product (GDP) growth will be minimal.  It said after a long clamour for fiscal stimulus, the government had on October 12 come up with measures with direct fiscal support to people and states and to generate demand. It noted that these included a leave travel concession (LTC) cash voucher scheme and special festival advance for government employees and Rs 12,000 crore interest-free loan to states and Rs 25,000 crore additional capex.

As per to the report, even when combined with the government's fiscal stimulus earlier in 2020, the size of the measures remains modest. In total, it said the two rounds of stimulus bring the government's direct spending on coronavirus-related fiscal support to around 1.2 percent of GDP. It noted that this compares with an average of around 2.5 per cent of GDP for BAA-rated peers as of mid-June. It also said that India's very weak fiscal position has constrained its scope for discretionary stimulus spending in response to the coronavirus shock.

Moody's expects India’s debt burden to touch 90 percent of GDP in 2020, up from 72 percent of GDP in 2019 which is significantly higher than the median of similar rated countries, of around 59 percent. The large debt burden is driven by chronically wide fiscal deficits. It stated that weaker government revenue, driven by the economic contraction and reduced corporate tax rates announced in September 2019, would widen the general government deficit to around 12 percent of GDP in the current fiscal.

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