Some thoughts on stimulus package

The stimulus package – part I announced by Hon. FM appears reasonably sound, albeit in a typical bureaucratic way, grudgingly certain imperatives, have been classified as stimuli (eg. refunds!). The devil is hidden in details and challenges could come up while implementation. Some comments:

·      It is important to analyse the intervention in three buckets direct spend

o  infrastructure creation (clubbed with job creation),

o  credit support ( again mostly for working capital creation),

o  consumption support ( sustenance as well as basic demand support);

·      The implementation is key and state governments are important partners however this has not been explicitly acknowledged by the Centre in the communications.

·      It is hoped that hopefully thinking beyond politics they will work in tandem else it will be quite inefficient.

·      I am not an economist, but simplistically, using ICOR ratio of 4 to 4.5 and assuming after sustenance support, 2/3rd of stimulus leads to incremental capital investment, one can expect a significant boost to GDP growth  (1.5 to 2% possibly?).

That said, IMO, one simple but humongous step would have been to release all Government/ tax dues at one go!

A) tax refunds – after all they are refunds meaning assessees’ own money!! What is the logic for excluding corporates from clearing dues?

B) Govt dues to all infra services / cos to be repaid - this alone will give them enough working capital without relying on banking system

C) All state government GST dues

Wonder what will be the ‘cost” of these interventions – but that is another subject !