Stimulus Package: Strong on Rhetoric, Weak on Delivery

-Aparna Kulkarni

Aatmanirbhar Bharat has become a new tag line of most of the public debates in India and it is supposed to dominate the discourse of government’s response to COVID-19 pandemic for some time in near future in the Indian context. Following the global trend and with tremendous pressure on releasing grants for the lockdown affected people, Government has announced an economic stimulus package of Rs. 20 lakh crores (which is 10% of India’s GDP) on 13th May 2020. However, it is said that this is Part I of relief package which is supposed to help out businesses and MSMEs. 

Globally similar packages have been announced by the respective governments all across. China being the highly hit economy has spent more than half-trillion dollars and increased debt limit to 60% of GDP which supposedly will fall by 7%, a record high in this decade. Germany, the strongest economy in Eurozone is expected to shrink by 3 to 7% due to the pandemic has planned to spend more than 350 billion euros which comes out to be 10% of Germany’s GDP. Japan, the export-driven economy, is expected to fall by 3% has given a relief package of 1 trillion dollars which is 20% of Japan’s GDP.

The United Kingdom, being badly hit by corona pandemic has planned to spend 15% of its GDP which is nearly 400 billion pounds with an expectation of 3% downfall in its GDP. The United States, highest hit economy has reported record high downfall in GDP by 5% and announced a package worth of 2 trillion dollars. Along with these nation-states, multilateral institutions like, IMF, European Union and World Bank Group have also contributed their funds for the noble cause. Looking at this, it was likely in India that such a package will be announced for small businesses and worker class. 

This relief package part I is supposed to be based on five pillars, namely, economy, infrastructure, vibrant demography, system and demand. As per the plan, this package is supposed to cater to sections like the cottage industry, MSMEs, labourers, middle class, etc. It iterates the need to become vocal for our local products and make them global. 

Some of the critical points of the package are: 

First, being an overall economic package, there is much more dependence on RBI’s monetary measures and relaxation on various types of loans. There is hardly any emphasis on fiscal measures like tax cuts or rise in public expenditure beyond budgeted or prefixed numbers. 

Second, Collateral free loans and relaxation might lead to disturbance in the bank’s balance sheet which in turn will lead to liquidity issues in the market. 

Third, the setting up of fund of funds, mother funds and daughter funds will create a chain of funds transfer. Any delay or disruption in the implementation of transfer will result in the failure of the scheme. Instead of this, it was possible to simplify the transfer through credit–on-demand basis. 

Fourth, redefinition of MSMEs along with upward revision in their investment limit is a welcoming step but it should be continued in post corona period too for further industrial revival in the country. It will also boost the confidence amongst entrepreneurs both, in rural and urban sectors. It will also provide a relief to debt stressed and sick business units. 

Fifth, extension in Income Tax return filing, GST payment will also provide comfort to taxpayers. In addition to it, 72.22 lakh employees will get a benefit of EPF support scheme for next three months in addition to last three months wherein 24% employer-employee contribution has been credited in the bank accounts of employees. The concern over here is the limited number of beneficiary employees who belong to the formal sector. Informal sector workers will not be able to get such support. 

However, Pradhan Mantri Garib Kalyan Package (I) includes some of the very effective measures like insurance cover of Rs 50 Lakh per health worker, 80 crore poor people will get the benefit of  5 kg wheat or rice per person for the next 3 months, 1 kg pulses for each household for free every month for the next 3 months, 20 crore women Jan Dhan account holders to get Rs 500 per month for next 3 months, free Gas cylinders provided to 8 crore poor families for the next 3 months, increase in MNREGA wage to Rs 202 a day from Rs 182 to benefit 13.62 crore families, Ex-gratia of Rs 1,000 to 3 crore poor senior citizen, poor widows and poor Divyang.

Such measures have the potential to bring comfort in the lives of poor families suffering from lockdown than corona pandemic. It is high time for the government to understand that India is more likely to have deaths of starvation than corona infections if a nationwide lockdown is continued further. The announced size of the package is Rs. 20 lakh crores, but unfortunately it takes a very little toll on actual government’s spending since most of the provisions will be made by either RBI or existing funds in different sectors. Many of the tax payments have been delayed not cancelled. So the taxpayers will have to make provisions for the future in such a difficult time. The most pertinent question, therefore is, what is the exact quantity of the fund that the Government is promising to provide in the name of this package? Is it the fiscal stress due to which the government is unable to spend as per the real need of the people? So, are we going to have rhetoric only which will be weak in its outcomes and delivery or there is some hope in it?   

The package announced recently makes it clear that outward-looking approach is no more helpful for inclusive growth so, need for becoming local is felt. But, poor people, marginalised sections need more from the government during this acutely painful situation. Are we listening to them?

Prof. Aparna Kulkarni is a faculty with St. Xavier’s College, Mumbai.