The Prime Minister’s Office (PMO) is learnt to have taken a series of meetings since last week to assess the overall economic situation. Discussions were held with NITI Aayog officials last week. Top Finance Ministry officials are meeting with the PMO this week. In the backdrop of the steep economic contraction expected in the April-June quarter, the government is trying to assess its revenue position, how it can be augmented and what more will be required to support economic activity in these uncertain times, sources familiar with the matter said.
While tax revenues are below estimates, there are discussions to push up non-tax revenues including through sale of government stake in various state-owned companies. The offer for sale (OFS) route is being seen as the fastest way to raise funds by cutting government stakes at least in those companies where valuations are supporting, the sources said. Stake sales are being planned through OFS in MIDHANI and Garden Reach Shipbuilders & Engineers Ltd and more companies are being prepared in the agriculture and chemicals sector, sources said.
“The PMO also held two rounds of meetings with top NITI Aayog officials last week on the state of the economy and to review progress with regard to sustainable development goals. There is focus on both short-term and medium-term aspects of the economy and the kind of interventions that will be required,” a senior government official said.
The outbreak of COVID-19 pandemic and the subsequent suspension of economic activity during the lockdown led to the exacerbation of the economic slowdown. Many rating agencies expect GDP to contract by more than 5 per cent this year.
With the easing of lockdown measures, economic activity showed an uptick but with fresh state-level curbs, many indicators are now plateauing. Data for electricity consumption, unemployment rate, mobility for retail and workplace have shown a flattening trend since mid-June with the initial spurt in consumption being seen as a sign of pent-up demand.
“The PM would want to assess whether another round of stimulus measures will be needed if the pickup in economic activity does not sustain, and how to fund it,” another official told The Indian Express. Alongside, there is monitoring of progress and implementation of measures that have already been announced. The government earlier announced a Rs 20 lakh crore package, which comprised some fiscal relief, liquidity measures announced by the RBI and lending activity by banks, especially to MSMEs.
While the most distressed were catered to in earlier measures, there is now growing demand for reduction in GST rates for automobile and other sectors and a wider income support to provide a demand stimulus.
Factory output has contracted for three consecutive months of March, April, and May, even though the rate of contraction showed some improvement in May over the previous month. Even though the government has not released the headline number, the index values for IIP reflect a 57.6 and 34.7 per cent contraction in April and May, respectively.
Fiscal measures from the government have been so far limited. With a shrinking revenue stream, the government has already put expenditure rationalisation measures in place for the first two quarters of this financial year cutting down on all non-essential expenditure of various departments and ministries along with directing them not to propose any new scheme for this fiscal. Direct taxes have declined by about 30 per cent in the first quarter and GST revenues have contracted 41 per cent. Lower GST revenues have translated into delayed and pending compensation payments to states, an issue which will be central to the discussions of the GST Council meeting slated for later this month.
For 2020-21, the government had set a target of Rs 6.81 lakh crore from corporate tax, Rs 6.38 lakh crore from income tax. The growth rate for total direct tax collections for 2020-21 had been pegged at 12.7 per cent, but given that the actual direct tax collections were lower than the revised budget estimate for 2019-20, the targeted growth rate for the current fiscal has surged to 28.4 per cent.
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