The Indian government’s Covid-19 relief package hit headlines recently. Shrouded in the powerful figure of Rs 20 lakh crores and the promise of an ‘Atma Nirbhar Bharat’, the package is appealing. However, a closer look reveals its loopholes. Notably, various economists have concluded that the actual fiscal impact of the package will only be around Rs 1.5 lakh crores i.e. 1% of the GDP as opposed to the 10% claimed by the government.
1. Collateral-free loans
A remarkable feature of this package has been the focus on MSMEs. Collateral-free loans worth Rs 3 lakh crore would help around 45 lakh units resume activity. The Rs.20,000 crore subordinate debt for stressed MSMEs will pull around 200,000 units out of the downward spiral. The new definition of MSMEs will help them grow in size and avail their respective benefits.
Further, dismissal of global tender of upto Rs 200 crores is a move towards creating a self-reliant India, as it will protect MSMEs from unfair foreign competition, and give them a chance to supply for big projects. Promotion of e-market linkages will help generate profits. All these steps will have a positive impact on the economy by giving a push to the supply side and adding a spur to economic activity.
However, the government failed to acknowledge the fact that given the prevailing uncertainty and absence of a regular supply of income, businesses and individuals might not be very enthusiastic about taking loans in the first place. In fact, even if they do, the dangerous possibility of generating more bad loans in the future would haunt them.
2. Special Liquidity Scheme
Next, under the package, PFC/REC are to infuse liquidity of Rs 90,000 crore to DISCOMs. Also, the Rs 30,000 crore Special Liquidity Scheme will provide liquidity support to NBFCs/HFC/MFIs and create confidence in the market. Under the Partial Credit Guarantee Scheme 2.0 for NBFCs, the first 20% of loss will be borne by the government and will result in liquidity of Rs 45,000 crore. These measures will help boost investment in the economy, which is clearly the need of the hour.
The Rs 8.01 lakh crore of liquidity measures announced by the Reserve Bank of India are also included in the relief package. These will increase money supply, and hence impact investment and consumption spending positively.
3. Tax Reduction
Other tax measures such as 25% reduction in TDS/TCS rate, along with extending due dates of income tax returns, will result in increased disposable incomes. Reduction of statutory PF contribution as well as extended EPF support will increase take-home salaries of employees.
Though the motive is to increase consumption spending, the most important component of India’s GDP, the much required push on the demand side is still missing. More impactful steps such as decreasing the burden of direct taxes have been left out by the government.
Just like consumption spending, government spending also had the scope of expansion, which this package failed to address.
4. Benefits To The Poor
Various sections of the society have been targeted through the package. The Pradhan Mantri Garib Kalyan package provides one kilograms of pulses for each household for free, Rs 500 for women Jan Dhan account holders, and free of cost gas cylinders — all of this every month for the next three months, besides various other benefits.
Also, the increase in the MNREGA wage from Rs 182 to Rs 202 per day and the efforts to enroll returning migrants are attempts at protecting people below the poverty line in these difficult times. Further, the arrangement of affordable rental housing and free food grain supply to migrants for two months, along with one nation one ration card will prove beneficial.
Additional measures such as Rs 5,000 crore special credit facility for street vendors, credit-linked subsidy scheme for middle income families, Rs 30,000 crore additional emergency working capital funding for farmers through NABARD, and Rs 2 lakh crore concessional credit boost to farmers through Kisan Credit Cards, ensure that everyone from farmers, street vendors and migrants is encompassed under the relief package.
However, in the current situation, where a big chunk of the population is either unemployed or waiting to go back to work, these measures will not be enough. Substantial direct cash transfers to the Jan Dhan or MNREGA bank accounts of these sections would have been a more effective alternative. By pushing up purchasing power and generating demand, it would have helped revive the economy.
5. Relief To The Agriculture Sector
The Rs 1 lakh crore financing facility for agriculture infrastructure projects, Rs 10,000 crore scheme for formalisation of Micro Food Enterprises, Rs 20,000 crore funding for fishermen, Rs 15,000 crore Animal Husbandry Infrastructure Development Fund along with focus on areas such as herbal cultivation and beekeeping: all ensure that the Primary sector gets the intervention it deserves.
Agriculture has also received focus under the package. Through deregulation of trade in several commodities and the formulation of a central law that will allow farmers to sell their produce intra-State freely, the government aims at better price realisation for farmers and to attract investments.
However, in these times of crop losses and added expenditures, increasing the MSP or wavering of loans would have been more impactful rather than fulfilling this demand made by rich farmers and corporate agribusinesses. These attempts to liberalise the agrarian sector along with measures facilitating corporate land acquisition, are a promotion of corporate farming that may reduce small farmers to mere contractual farmers.
Interestingly, agriculture is not the only sector that has experienced pro-corporate reforms. The package also includes other measures to boost privatisation and FDI such as commercial coal mining, privatisation of power and airports, increase in FDI in defense industries from 49% to 74%, promotion of private participation in the space sector and so on.
Is India’s Economic Approach A Shock Doctrine?
This package carries an uncanny similarity to the shock doctrine — a strategy that uses a shock or crisis (such as the ongoing Covid-19 pandemic) to impose an extremely neoliberal economic regime. Is India also on its way to taking advantage of the ongoing pandemic to capture free-market policies that benefit its top 1%?
The relief package is clearly far from perfect, and missed out on various things. For example, the badly Covid-hit services sector including restaurants and the hotel industry, failed to be recognised by the government. Also, in times where millions are being kicked out of their jobs, the package failed to address the issue of unemployment. Labour intensive industries could have been incentivised and areas such as construction, which create a lot of jobs, could have been nudged.
However, despite all the shortcomings, the package carries the potential to revive the economy. At the end of the day, its expected impact boils down to the question of successful implementation.