No Stimulus in Economic Stimulus Package

What actually is the central government’s Atmanirbhar Bharat Abhiyan package? Is it an economic stimulus or a relief package? As an economic stimulus, prima facie, it has followed the textbook prescriptions of supplementing fiscal incentives with the Reserve Bank of India’s (RBI) monetary measures as declared on 27 March and 17 April 2020. However, the government seems to have taken up this coalescing exercise more seriously in its “literal” sense by adding up the additional liquidity of ₹ 5–₹ 6 lakh crore provided by the RBI’s credit-easing decisions to arrive at a ₹ 20 lakh crore worth package, not to mention the earlier relief of ₹ 1.7 lakh crore announced by the finance minister on 27 March 2020. Though the concerns at this point are many, there are some obvious ones.

First, is the veracity of such calculation. While the central bank’s current liquidity decisions contribute to about 25%–30% of this ₹ 20 lakh crore package (notwithstanding the liquidity generated by its long-term repo operations), it must be remembered that this additional liquidity is generated within the banking system and can only reach the broader economy through bank lending. This, in essence, is way different from the direct expenditures of the government—as warranted during a national disaster like the COVID-19—and it only inflates the value of the package, which, in turn, potentially bloats the electorate’s hopes and aspirations from their government. Second, and in tandem with the first issue, is the concern as to whether the fiscal measures announced by the finance minister between 13 and 17 May 2020 can create conditions for the banks to lend to the broader economy.