Nirmala Sitharaman leans on banks, institutions to fund package

Finance minister Nirmala Sitharaman (File photo)

NEW DELHI: The first package in the Atmanirbhar Bharat Abhiyan unveiled by FM Nirmala Sitharaman on Wednesday seems to have leant more on public sector banks (PSBs) and institutions, and the outgo from the Budget appears to be minimal.
While the Rs 3-lakh-crore automatic loan for businesses and MSMEs is backed by government guarantee, the burden will be felt by PSBs. Similarly, the Rs 90,000-crore liquidity infusion for distribution companies will be handled by entities such as Power Finance Corporation and Rural Electrification Corporation. Even the relief under the employees’ provident fund is largely an accounting exercise and provide a small relief to staffers whose contribution to the scheme will be reduced.
A former finance secretary said the Centre’s stretched finances allowed little headroom. “Because of this, you have to be innovative. You have to bank on everything available in the system,” he said.
Asked about the cash outgo for the first package, Sitharaman said she would prefer to wait until all the packages are announced, although she said the increase in market borrowing could be a source of funding the packages. Kerala FM Thomas Issac said if the first package is a fair sample, the Rs 20-lakh-crore stimulus is going to be deeply disappointing. “The actual outflow of resources directly from the Budget is only around Rs 30,000 crore,” Isaac tweeted.
PM Narendra Modi has said size of the package, including the ones unveiled earlier by the FM and the RBI, will total Rs 20 lakh crore and account for 10% of GDP. The government is walking a tightrope between demands for a large stimulus and the need to keep in mind fiscal consolidation and the possibility of sovereign ratings downgrade in case the deficit reaches unsustainable level.
Economists said the burden in the first package has shifted to the PSBs and may be households, who are shareholders in these banks. “At a time when you are reducing the number of PSBs, you are also burdening them with more responsibilities. It will be the PSBs and financial institutions who will bear the burden,” said N R Bhanumurthy, professor at the National Institute of Public Finance and Policy. “The measures would be largely fiscal-neutral in the present year, with the Rs 20,000 crore of subordinate debt for stressed SMEs and equity funding of Rs 10,000 crore from the fund of funds, probably being the outlays this year,” said Madan Sabnavis, chief economist at Care Ratings.

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