Fiscal stimulus: Global, domestic investment advisors see it as a ‘missed opportunity’

Union Finance Minister Nirmala Sitharaman’s ₹20.9-lakh crore fiscal stimulus has failed to cut ice with investment advisors. Most see this as a missed opportunity, which may not revive the much-needed consumption activity. The announcements are mainly on the reforms side, but what the economy needed is financial stimulus, they opined.

Stock markets too captured the disappointment of marketmen. The BSE Sensex and the NSE Nifty slumped 3 per cent each till noon. Banks were the worst performers, as they are going to share the large burden of the stimulus, marketmen said.

According to global investment advisor Bernstein, India’s desire to announce a large economic package, something that shows the world that they care about the economy and are willing to match global stimulus numbers, was perhaps the driver for the claim of a large package ($280 billion, 10 per cent of GDP). “While the package started on important aspects but the need to announce measures that add up to this top down number, made the entire package aimless, with several generic announcements which should ideally have been part of a normal economic agenda. Overall, we see it as a lost opportunity,” Bernstein added.

Outlook downgrade by rating agencies?

Gautam Chhaochharia, Analyst, UBS Securities India Pvt Ltd, said: “While we do not see an imminent sovereign rating downgrade (by S&P and Fitch), an outlook downgrade (stable to negative) cannot be ruled out. Considering Moody’s ranks India at one notch above investment grade (with a negative outlook), a rating downgrade to the lowest investment grade is still possible. The temporary nature of the fiscal stimulus and likely rebound in nominal GDP next year will make it relatively easier to return the deficits to more normal levels, after this crisis is over, in our view.”

Bernstein, further said, “The plan, in our view, was a general economic agenda and lacked substantive decisions to support consumption, promote manufacturing and even the broader reforms lacked the spark, while urban and corporates (irrespective of impacts) were ignored.”

The key excitement, according to Jefferies, will be how the current crisis enables structural positives, with focus on ease of doing business, e-Governance, labour and power distribution reforms, and an increased focus on privatisation. With fiscal news now behind us, the market focus should return to earnings and economic indicators.

HSBC Global said markets were expecting a more immediate demand-side stimulus. True that some measures to remove immediate distress are contained within the package (e.g. higher food grains, MGNREGA outlays and MSME credit guarantees). However, a large part of the attention has been towards medium-term supply-side measures (revitalising agriculture marketing, stabilising coal availability, etc), it added. However, much will depend on speedy implementation of these reforms, and in that sense, the work for the authorities has just begun, it cautioned.

‘No unconditional support’

According to Edelweiss Securities, from the near-term perspective, credit guarantee is a welcome step, and, if implemented effectively, should help MSMEs sustain through difficult times. The transfers address basic humanitarian needs and provide the poor with some extra cash, a much-needed initiative. Yet, the package is underwhelming on ‘here and now’ demand stimulus, it added.

Motilal Oswal Financial was expecting some direct cash/income transfer to non-agriculture casual/migrant workers and unconditional support to disproportionately affected sectors such as aviation, hotels and restaurants, etc. “The government has relied heavily on credit guarantees. In short, the government has tried to replace unconditional income support by obligatory credit, which does not seem appropriate in the current situation and certainly increases the risk to India’s financial system (and fiscal math) at a later stage,” it added.

Domestic broking firm Anand Rathi Securities said the policies laudably focused on sustenance of the poorest but did little to boost demand.

The government’s ‘Atmanirbhar’ package, elaborated by the Finance Minister over the last five days, is a mix of many easy loan schemes, a slew of long-awaited policy reforms across sectors and a little bit of actual money spent by the government, said Emkay Global.

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