ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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No Stimulus in Economic Stimulus Package

Atmanirbhar Bharat Abhiyan falls short of being either a relief or a fiscal 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.

Here, one should remember that monetary policies can only make credit cheaper. It, however, cannot compensate for fiscal stimuli, especially in a country that is now even more entangled in a liquidity trap. While exploring whether ₹ 20 lakh crore can help the economy tide over this unprecedented crisis, it is disconcerting to realise that even less than 10% of the total amount is earmarked for direct transfers, primarily through the Pradhan Mantri Garib Kalyan Yojana package. The efficacy of reviving the macro foundation of the economy is undeniable, but at this hour of such extra­ordinary human miseries it is not clear why “labour”—claimed to be one of the four pillars of the self-reliant (atmanirbhar) India in the Prime Minister’s address to the nation on 12 May 2020—loses its traction to “liquidity” and “law,” the other two of the four pillars.

Let us take, for example, the package declared for the micro, small and medium enterprises (MSMEs), with the micro and small units, particularly, considered to be major employers of the unorganised, migrant labour force. On the one hand, there are innumerable liquidity easing measures, such as ₹ 3 lakh crore collateral-free automatic loans for business, including MSMEs, ₹ 20,000 crore subordinate debt for MSMEs, ₹ 50,000 crore equity infusion through MSME Fund of Funds, among others. On the other hand, a revision in the definition of MSMEs by using a composite investment-turnover category has brought new ambiguity in the sector. By assuming a turnover at five times of investment for all three categories of enterprises, their heterogeneity in terms of (capital) labour intensity and turnover is assumed away. In so doing, the sectors particularly important for employment generation are at the risk of falling out of the MSME threshold. Of what use will the liquidity facilities be to them?

A similar ambiguity is lingering over the (claimed) employment generation for the return migrants through the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). While the central government has promised an additional allocation of ₹ 40,000 crore generating nearly 300 crore person days of work at an average wage rate of ₹ 202, how much of that will materialise in practice is doubtful, particularly with states like Rajasthan, Uttar Pradesh, and Madhya Pradesh—that are among the top 10 performers in terms of providing employment under the MGNREGA—bringing out labour law ordinances to do away with issues like minimum wages, optimal work hours, safe work conditions, etc, in the name of reviving (private) investments. Ironically, the finance minister’s announcements on reformed governance consider the “ease of doing business” as the only credible criterion to be fulfilled, while a pressing issue like “health reforms and initiatives” is fleetingly discussed without laying forth any detailed plan of action or financial allocations towards the relevant item heads.

It is true that the government is juggling with four difficult issues at this point: managing the onslaught of the pandemic, which now seems to be on a rising curve; reviving an economy that is declining equally fast due to a lockdown rested on the back of an ongoing economic downswing; allocating financial resources towards mitigating these two equally forceful but opposite trends; and planning an economic rebound in the post lockdown scenario. Many may argue that the current package targets for a macro­economic revival as part of the government’s exit plan from the lockdown. But, have we already tided over the immediate impacts of the pandemic? At this point, the specific role of the fiscal stimulus should be to increase public spending in physical or human capital, raise money in the hands of residents by direct cash transfers and subsidies, and provide safety nets like job guarantee and unemployment benefits. Despite being 10% of the gross domestic product, the Atmanirbhar Bharat Abhiyan is far from being that kind of a fiscal package.

 

Updated On : 26th May, 2020

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