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India is experiencing a consumption slowdown (Representational image) | Prashanth Vishwanathan | Bloomberg
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New Delhi: The Indian economy will suffer its deepest contraction on record this fiscal year, according to economists polled by the Reuters.

The survey also revealed that the government’s recent stimulus package will not be enough to boost the economy that has been affected by the coronavirus pandemic.

The poll was conducted between 13 and 21 October, and 55 leading economists took part in it. Of these 55 economists, 26 had predicted a contraction of 10 per cent or more this year.

As many as 34 out of 39 economists (around 90 per cent) who responded to an additional question said the latest government stimulus was not enough to boost the economy. It would take at least a year for the Indian GDP to reach pre-Covid levels, said 35 economists.

The Indian economy had contracted by 23.9 per cent in the April-June quarter and is expected to contract in the second quarter too, but by a lower magnitude. In the third bimonthly monetary policy review announced earlier this month, the Reserve Bank of India had projected that the Indian economy will contract by 9.5 per cent in 2020-21.

Also read: Why this one analyst has been pessimistic about investing in HDFC Bank despite its profits

Government stimulus 

The finance ministry had earlier this month announced a cash voucher scheme where government employees and others can get tax-free cash in lieu of their leave travel concession (LTC) — the government-funded travel scheme — to buy white goods (ACs, washing machines, etc) and other non-food items.

It also announced measures to increase capital expenditure, including an additional Rs 25,000 crore capital expenditure by the government and long-term 50-year interest-free loans for state governments amounting to Rs 12,000 crore.

The government had estimated that these measures will boost demand by at least Rs 1 lakh crore. But according to experts these will only cost the government around Rs 30,000 crore, and that too from mainly increasing capital expenditure.

“Circular spending makes the consumer spending push fiscally neutral. As the spending limit on consumer durables can be up to three times the earlier tax concession (tax breaks for travel allowance), we do not believe the scheme will have any material fiscal cost, as the extra GST collected will likely offset the extra cost that may be incurred on the government’s balance sheet,” Rahul Bajoria, chief India economist at investment bank and financial services company Barclays, had said.

The government had also announced a Rs 10,000 one-time special festival advance for government employees. But Bajoria said it was “unlikely to be a fiscal cost” and more a “cash flow issue” that will not have a material impact on fiscal sustainability.

With inputs from Remya Nair

Also read: Worst over for Indian economy, country to see V-shaped recovery, says finance ministry


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