A Package for Self Reliant India

Prime Minister Modi announces Lockdown 4.0; details of the same shall be officially released on May 18.

Key Points

PM Modi mentioned a New Deal for Aatmanirbhar Bharat – a self-reliant India. Rs 20 lakh crore stimulus package announced by the Prime Minister includes previously announced measures to save the lockdown-battered economy, and focuses on tax breaks for small businesses as well as incentives for domestic manufacturing.

India’s package is not trickle down, but empowers one and all. There is great focus on labour, hawkers, street vendors etc, who tend to always get neglected.

PM Modi has given a clarion call to create a self-reliant India. But this call for self-reliance is very different from the isolationist and protectionist self-reliance movements across the worlds.

There is a specific talk of improving efficiency, competing with the world as well as helping the world.

India so far…

India so far has had the harshest lockdown in the world accomplished by the most measly fiscal support to vulnerable sections of the economy. In fact, the narrative spun by the finance ministry over the past 45 days was that India did not have the resources for a big bang fiscal package similar to those delivered by many developed nations.

And the big move –

Nevertheless Prime Minister Narendra Modi on Tuesday chose to unveil a mega fiscal package of Rs. 20 lakh crore – equivalent to 10% of India’s GDP. Prima facie, the magnitude of the package seems to reflect a desire to compensate for things that have gone horribly wrong these past few weeks – especially the terrible plight of migrant workers and their families, who have been abandoned by the Indian state. The details of the package will show how much has really been provided for the impoverished and unorganised working class.

The political optics of the package clearly suggest that Modi wants to be seen as generous in spending as other big countries. This includes the United States, which put together a rescue package of about 13% of GDP.

However, one will have to wait for the package to be unveiled by the finance ministry because the devil is often in the details.

The key element one needs to look out for is how much cash will be dispensed immediately to the most needy sections of society. In an unprecedented economic crisis such as this one, with nearly 25% of the total work force unemployed and possibly another 25% not certain whether they will get back their jobs, the govt has to just focus on how 50% of India’s work force will run their households over the next year as the economic struggles to limp back to normalcy.

Wait for Immediate Cash –

India’s total work force is 500 million and Modi’s package must be judged foremost by how it will support half of India’s work force (i.e. 250 million) which is either unemployed or waiting to go back to work, post normalisation.

So the most important element of the package is the immediate cash support to this lot. The support can be either direct cash transfer to the very poor among the unemployed and in the form of incentives to small and micro enterprises to bring many others back to work. This will be critical to generate short term demand in the economy, which will help scale up supply – is down by over 70% across the board in most sectors except the healthcare.

Calculate the move this way –

The Prime Minister has said the Rs. 20 lakh crore package includes all the liquidity-enhancing measure already announced recently by the RBI. Depending on how you calculate, the central bank’s efforts add up to anywhere between Rs 5 lakh crore to 8 lakh crore. So what is left for the Centre to deliver is Rs 12 lakh crore to Rs 15 lakh crore. Of this MSME minister Nitin Gadkari has said a large amount is already owed by the government – both Centre and state – to small companies in India. Gadkari told that there was such a large amount in outstanding dues from government to MSME that he would not want to even reveal the figure.

One suspects it runs into a few lakh crores, including GST refund dues to exporters. Gadkari said the MSMEs may get guaranteed bank loans against such outstandings. It will be unfair if the government adds this to its relief package because this is money already owed to small businesses.

One will have to net out all these elements to determine the real extent of fresh funds provided by the Centre for economic revival.

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