Fiscal Stimulus: Lesser available Fiscal Space today vs post-GFC period

05 MAY 2020

  • Fiscal deficit stood at 2.6% of GDP in FY08 (lowest ever) leaving ample space for the government to provide a stimulus of more than 3% of GDP in FY09. Fiscal deficit jumped to 6.1% of GDP in FY09 and further climbed to 6.6% in FY10. Total Govt. expenditure increased 24% YoY despite a 6.6% decline in revenues in FY09. In contrast, Citi analysts expect the Centre’s fiscal deficit to reach 4.3% and 8% of GDP in FY20 and FY21 respectively.
  • Following the GFC, excise duty on most items (except petroleum) was reduced by 4-6% and service tax was reduced by 2%. In 2020, while the excise duty on petrol/diesel has been increased to benefit from falling oil prices, Citi analysts do not expect substantial GST relief, as social-distancing norms are expected to depress consumption related tax collections further.
  • Credit guarantee cover had been increased to make MSME lending more attractive for banks post the GFC. Citi analysts expect some MSME credit support in 2020 in the form of direct financing or credit guarantees.
  • Centre’s fiscal balance (FY00-FY20E)

    Source: CEIC, Citi Research
  • Infra: INR 300bn of tax-free bond issue was allowed through IIFC to provide long-term funding to infrastructure sector, while some housing companies were also allowed to borrow externally post-GFC. Public Capex however fell by 25% in FY09.
  • While fiscal measures are expected to incline more towards revenue expenditure in FY21, Citi analysts expect some support to rural employment through roads/housing construction projects.
  • Other post-GFC fiscal measures included refund of excise duty, provision of lower interest bearing credit for exporters and purchase of >15,000 busses to support the auto sector.
  • Citi analysts expect fiscal support amounting to 1.5%-2% of GDP in FY21 in the form of direct income support for the poor, humanitarian & health packages, credit support to MSMEs and vulnerable industries.



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