Our take on Atmanirbhar Bharat Package 3

By Morningstar Analysts |  13-11-20 | 
 

The government announced the third tranche of measures focused on reviving the economy. In continuation to the measures announced earlier, the Atmanirbhar Bharat Package 3.0 is centered around improving the availability of credit, employment generation, and rural economy.

Our take

Increased allocation of Rs 10,000 crore for MGNREGS (current outlay is Rs 1,01,500 crore, of which Rs 73,000 crore has been utilised) will provide an employment boost to migrants and laborers. This should have a positive impact on rural consumption demand. Also, the Atmanirbhar Bharat Rozgar Yojna should incentivize new employment generation. Although, the eligibility criteria may dilute the benefit passthrough. Increased supply of subsidised fertilizers (Rs 65,000 crore) should help farmers ahead of the rabi season, eventually leading to increased farm income.

The Emergency Credit Line Guarantee Scheme (ECLGS) announced earlier got an extension till March 31, 2021. So far, the disbursed amount stands at Rs 1.52 lakh crore. The scope of eligibility has been widened which now includes 26 stressed sectors plus the health care sector. This should significantly improve the availability of credit for the identified stressed sectors. Some of the measures announced such as Production Linked Incentive (PLI) scheme, the platform for infra debt financing, and capital & industrial expenditure would transpire over the long-term. The PLI scheme for 10 sectors would further boost domestic manufacturing, employment, and promote the government’s Make in India initiative. The additional outlay of Rs 18,000 crore under PM Awas Yojna (urban housing) is a major step to help generate employment. This along with, income tax relief and measures announced in earlier packages for developers and home buyers should help in reviving the housing, real estate, and linked sectors. Relaxation of Earnest Money Deposit (EMD) and performance security on government tenders would help contractors by reducing the locked capital.

The recently published high-frequency indicators signal a decent recovery in consumption demand, business activity, energy consumption, and credit growth. How much of it can be sustained post drying up of pent-up demand and festive season needs to be watched closely to make a better assessment of the economic growth revival. Some of the measures announced today would have some positive impact on economic growth in the near term, whereas others (such as PLI) should bode well over the long-term.

Given the tight fiscal situation, the government has limited room to announce measures that will have a direct outlay to improve household income. The government kept its borrowing program for the current fiscal year unchanged at Rs 12 trillion which was last revised in May. The risk of not meeting revenue targets continue to persist. Although a possibility of additional borrowing which could be announced in December or January cannot be ruled out. Also, the finance minister did hint towards an additional market borrowing during the Q&A session in today’s press conference. The debt market continues to linger on the firm commitment provided by the RBI to absorb additional supply via OMO purchases.

In this unique economic situation, we are actively reviewing our views across asset classes and portfolio positioning.

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