On May 12, 2020, the PM announced 20 Lakh cr economic package, after which, for the next five days, our FM explained it bit by bit. First of all, there are two kinds of economic packages: monetary (which is done by RBI), and second one is fiscal which is done by the Government.
So, What Does The Package Have For The “Aam Aadmi”?
- Out of 20 Lakh cr, 8 lakh cr rupees of liquidity infusion had been announced by RBI before this package’s announcement. Basically, RBI will lend to the banks on low interest rate, and then, bank will pass this benefit to the corporates, small businesses, etc. in the form of low interest loans. Supposedly, this will churn the economic wheel.
- Next 1.7 lakh cr were announced by the government itself at the end of March. It has also been included in the 20 Lakh cr economic package.
- Some old schemes, such as PMMSY Yojna which were mentioned in 2019 budget, have also been included.
- Further, 3 lakh cr of loans are being given to MSMEs.
- 90k cr loan guarantee power distribution to companies.
- 2 lakh cr of concessional credit(loan) to the farmers.
- 5k cr “special credit facility” (a loan) to the street vendors.
- 8 cr migrant workers will get free foodgrains worth 3500 cr.
- Now, people will give less contribution to their EPF, from 12% to 10%. Basically, you are taking your future income and spending it in the present. There’s also a reduction of 25% in your TDS; this will give you very miniscule money in your hand to spend. These two came out of a person’s own money.
- MGNREGA workers will get more work through more investment into this scheme by the GOI.
So, What Is The Government Really Spending?
According to HSBC India, the amount will be 1% of the GDP, which is 2 lakh cr., and Care ratings has estimated it to be around 2.73 lakh cr.
In the end, there is nothing wrong in providing loans/cheap interest loans, but this pandemic and the resultant lockdown has led to job losses, revenue losses and even lack of stable income. This makes it difficult for affected people to take loans and pay them back. Add to it more problems from weak demand much before COVID-19 was introduced to the equation… Let’s hope there is no big NPA ghost waiting for us.
Nobel laureate Abhijit Banerjee has said, Modi government should look at providing cash transfer to the bottom 60% of India’s population to help revive the economy. “We haven’t decided on a large enough stimulus package. We are still talking about 1% of GDP. United States has gone for 10% of GDP,” he pointed out.
Abhijit Banerjee also flagged the need to completely cancel debt payments by borrowers for the entire quarter rather than just rescheduling it in a bid to protect firms against bankruptcies. In March, the RBI had announced a three-month loan moratorium on all term loans, providing a reprieve to the borrowers.
All in all, when the demand is there and people are equipped with disposable income, the economy’s wheel will start rotating and demand will check the supply side surely.