New Delhi: FICCI's Economic Outlook Survey released on Monday has quoted economists as saying that the fiscal stimulus packages announced by the Centre to address the slowdown in the wake of the COVID pandemic could have been more aggressive and that the measures announced by the government and the RBI (Reserve Bank of India) so far have offered limited support for creation of demand. "Economists were asked to share their views on the fiscal stimulus package 2.0 and any additional measures that can be undertaken. Participants were of the view that government measures in Stimulus 2.0 focussed broadly on saving lives and on undertaking deep structural reforms. They, therefore, felt that while the quasi-fiscal measures and structural reforms announced were undoubtedly steps in the right direction, on ground implementation and results will take a long time to work through in the present environment," said the survey report.
"A majority of economists believed that the government could have undertaken a more aggressive fiscal stance than what has been announced in the two stimulus packages combined. Participating economists highlighted that the measures announced by both RBI and the government focussed largely on addressing supply side constraints with limited support for creation of demand," it added.
They strongly felt that there is a need to provide more measures to boost demand conditions in the economy. Reviving demand in the economy currently holds greater importance not only because India is broadly a consumption driven economy but also because investments driven growth is unlikely to gather momentum despite all the right measures as corporate India is reeling with excess idle capacity.
Apart from pure cash transfers, the government could also consider GST rate reductions especially in the non-essential goods segment which has the potential to drive demand. Furthermore, some sort of tax waivers could also be undertaken for low income groups. Alongside, sector specific measures could also support recovery in a big way. Sectors with high backward and forward linkages such as automobile, construction, housing etc. could be revived without incurring fiscal strain. Steps such as announcing of vehicle scrappage policy coupled with cash rebates which could be funded by additional GST revenue flowing from higher production, providing sovereign guarantee on incomplete housing projects should be cons'idered, the report said.
Moreover, the economists were also asked to share their suggestions on further monetary policy actions that can be undertaken by the Central Bank. The participants unanimously believed that the RBI would undertake further cuts in the repo rate going forward to minimise the economic shock and stabilize financial markets. Nonetheless, a majority of the participants also opined that cutting interest rates would not pump economic growth, given that the demand conditions have remained subdued from even before the COVID pandemic struck the economy.
Economists felt that banks remained risk averse. Participants said that while the RBI has been proactive in addressing liquidity constraints in the economy, most measures have not yielded expected results. A muted response to TLTRO 2.0, which was designed to help NBFCs, is one example. The scheme has only benefitted AAA rated companies, while many NBFCs and in turn MSMEs have been left out.
The economists further suggested that a one-time loan restructuring could be brought in by the RBI when visibility on cash flows, especially for MSMEs, improves, the Central bank could widen the policy corridor further by reducing reverse repo rate more aggressively, it could also further increase the refinancing window for SIDBI/NHB/NABARD to facilitate lending to low rated companies. The government's guarantees announced recently would help with associated credit risks this time around, the panel added.
The RBI should also relax end use restrictions for refinancing facilities of NABARD, SIDBI and NHB, and should start supporting non-G-sec market by directly buying corporate papers, the economists opined. This should ease funding rates for lower credit rated borrowers, the report said.
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