indian economy: Show me the money! Analysts say illusory stimulus leaves economy, stocks in big trouble – The Economic Times

The hype around the Rs 20,00,000 crore government stimulus seems to have fizzled out.

“This is not a stimulus package. A stimulus package is something that would increase GDP,” says Swaminathan Aiyar, Consulting Editor at ETNow.
NEW DELHI: The hype around the Rs 20,00,000 crore government stimulus fizzled out and stocks are falling like a deck of cards on Dalal Street.

Analysts are trying to figure out whether the big package had any cash stimulus at all for the Covid 19-hit economy, which now stares at a worst recession ever.

“This is not a stimulus package. A stimulus package is something that would increase GDP,” says Swaminathan Aiyar, Consulting Editor at ETNow. He said the actual fiscal stimulus announced by the government so far was perhaps not more than 1 per cent of GDP.

“The government is afraid of a downgrade by foreign rating agencies,” Aiyar said. “We are facing an economic collapse. So please call it whatever you may like, but do not call it a stimulus. You might at best call it a sedation. You might say that when the patient is crashing, I am trying to ease the pain a little. That is what we have achieved. But aggregate demand is collapsing at a time when supply itself is collapsing, because the lockdowns have interrupted all kinds of production chains. The outlook remains very grim,” said Aiyar.

Goldman Sachs early Monday warned that India was headed for its deepest recession ever after a poor run of data underscored the damaging economic impact of lockdowns in the world’s second-most populous nation.

GDP, it says, will contract by an annualised 45 per cent in the second quarter from the prior three months, compared with Goldman’s previous forecast of a 20 per cent slump.

No wonder Sensex tanked 1,000 points and Nifty breached its crucial support of 8,900 level in Mumbai trade on Monday morning.

“A lot of us are worried (more than disappointed), wondering whether the government has been taking the right lessons from what has happened in last 5-6 years. The PSU policy, for instance, led to huge value destruction in PSU stocks. At the end of the day, it is a muddled response to what is happening in the economy,” Ajay Srivastava, Dimensions Corporate Finance Service, told ETNOW.

“The big danger of the package that it is so debt-driven, unless something dramatically happens to the fortune of companies, you will have bigger bankruptcies,” Srivastava said.

Others were disappointed too.

“The ‘10 per cent of GDP stimulus’ and reform announcements are worth grabbing international headlines. However, it is not clear how many of these reforms are actually linked to the ongoing pandemic,” said broking house Emkay Global.

“In fact, we are not sure about the timeline of implementation of many of the reforms. The immediate need for income support and the real economic stimulus are still outstanding issues yet to be satisfactorily resolved,” it said.

The reforms related to freeing up agricultural markets are fresh and can invigorate the farming industry. Most of the mining sector reforms have been talked about for a while, and the hurdles are well known – and unlikely to be addressed soon, Emkay said, adding that the IBC freeze for 12 months will be a setback for Indian banks.

An analyst who did not wish to be named asked: “Are we talking about corporate reforms or Covid-19 relief package?”

“The direction is hijacked. Where is the need for reforms? Which corporate sector is going to put money when everybody is worried about poor capacity utilisation? Reforms are surely long-term positives, but are no Covid-19 relief,” he said on Saturday.

via indian economy: Show me the money! Analysts say illusory stimulus leaves economy, stocks in big trouble – The Economic Times

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