Finance Minister Nirmala Sitharaman on Monday announced a fresh set of measures to the tune of Rs 6.29 lakh crore to provide relief to various COVID-hit sectors like tourism and small businesses.

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These measures included a mix of direct fiscal costs to the government as well as additional contingent liabilities in the form of credit guarantees to various sectors - the focus being more on the latter.

The total quantum of credit guarantees is Rs 2.67 lakh core which includes the enhancement to the Emergency Credit Line Guarantee Scheme (ECGLS) by Rs 1.5 lakh crore, the health sector (Rs 50,000 crore), microfinance institutions (Rs 7,500 crore), and other sectors (Rs 60,000 crore).

The direct outlay has been focused on the rural districts in the form of additional food grains and fertiliser subsidies along with increased health spending with a foresight of a possible third wave of the pandemic hitting the country.

Since there is no major direct stimulus announcement, economists expect a minimal impact on the country’s fiscal balance. The Central government has budgeted a fiscal deficit at Rs 15.06 lakh crore and 6.8 percent of GDP for FY22.

Experts are of the view that with the additional measures, there is a possibility of fiscal slippage in the range of around 0.5-1 percent from the budget estimates.

Madhavi Arora, lead economist, Emkay Global Financial Services said while the measures were welcome and targeted Covid sensitive sectors, most of the financial support was still below the line and in the form of loan guarantees, and not direct stimulus.

“Overall, amid various push and pull, there is a likelihood of fiscal slippage to the tune of around 0.5 percent from the initially budgeted 6.8 percent. Despite the slippage, the effective fiscal impulse will still be negative in FY22. Given the limited efficacy of monetary easing currently, continued countercyclical fiscal policy support—and avoiding a premature consolidation—remains crucial,” Arora said.

Care Rating believes that the budgeted fiscal deficit target is unlikely to be met given that the Centre has to incur additional expenditure under the new relief measures as well as the shortfalls in their income consequent to the resurgence in the pandemic and the reimposition of lockdown across most regions of the country for the major part of Q1 FY22.

Factoring the likely revenues and additional expenditure, the overall fund shortfall or increase in fiscal deficit could be anywhere between Rs 1.97 lakh crore to Rs 2.27 lakh crore.

“The fund shortfall (due to additional expenditure and lower income) would push up the fiscal deficit to Rs 17.04 lakh crore - Rs 17.33 lakh crore. The nominal GDP for FY22 was estimated to be Rs 222.9 lakh crore. We assume this will not change as the lower real GDP growth rate of 8.9-9% will be offset by higher inflation. If there is slippage, the deficit would be higher,” Care Ratings said in a report.

The increase in the quantum of the fiscal deficit would potentially push up the fiscal deficit to 7.7 percent to 7.8 percent of GDP in FY22 which is a 0.9 percent to 1.02 percent increase over the budget estimate, it added.

Meanwhile, almost all the measures were on the supply side and for them to work the responses have to be positive.

“For the credit guarantee scheme to work we need to have enterprises come and borrow money for investment. If this does not happen, then the impact will be limited. Therefore, the absorptive capacity of the borrowers is important which will depend partly on the demand revival,” Care Ratings said.

Further, the revival of demand could be limited with this package as that will depend more on job creation and income generation.