The latest round of stimulus measures announced by the government will have a minimal impact on growth and highlight India’s limited budgetary firepower, which proved to be credit negative, according to global rating agency Moody’s.

“Notwithstanding the fiscal prudence of the measures, the small scale of the stimulus highlights limited budgetary firepower to support the economy during a very sharp contraction, a credit negative,” it said in a note on Thursday.

On Monday, finance minister Nirmala Sitharaman announced the Leave Travel Concession (LTC) cash package and a special festival advance for central government employees along with Rs 12,000 crore capex loans to states and additional central capex of Rs 25,000 crore.

Sitharaman said the measures are expected to stimulate additional demand of Rs 73,000 crore in a fiscally prudent way.

According to Moody’s, the total cost of the measures came up to Rs 46,700 crore or 0.2% of its real gross domestic (GDP) forecast of -11.5% for FY21. The measures would require additional direct spending of Rs 41,000 crore but not any additional borrowing by the Centre, it said.

“While the latest stimulus will spur consumer spending over the near term as coronavirus-related restrictions continue to be eased and India’s festive season begins, the support to growth will be minimal,” Moody’s said.

While consumer confidence was subdued in the first quarter, with the number of Covid cases still elevated, further relaxations of restrictions from October 15 could weigh down on consumer sentiment, the note said.

Moody’s projected the general government deficit to hit 12% of GDP in the current fiscal as government revenues decline on the back of economic contraction and reduced corporate tax. General government debt is expected to touch 90%, it added.

For the coming fiscal, the agency forecast growth to rebound to 10.6% as the economy gradually normalises and to settle at around 6% over the medium term.

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