15

The Prime Minister’s announcement of a 20 trillion-rupee stimulus for a ‘self-reliant’ India may bring back the confidence of the nation. But we need to wait for the details of the break-up which the Prime Minister said would be announced by the Finance Minister soon. He, however, made it clear that the package will include the reliefs announced earlier which includes Rs1.7 lakh crore for the poor and the RBI’s relief package of Rs 4.5 lakh crore.

So, in reality, we are likely to see an additional fund of Rs 12.8 lakh crore in the stimulus. Interpretations will vary and we will find members of the opposition trying to figure out what amount will be fresh funds and what will be part of the budget allocations already announced. The initial package was not even one per cent of our GDP; but the new stimulus as the prime minister claims will be 10% of the country’s GDP. This should make India competitive with many advanced nations in matters of giving stimulus to the economy.

The stimulus package has been quite intelligently woven into the ‘big bang’ economic reforms which Narendra Modi has been speaking about since he was elected for the second term. Leading from the misfortune of Covid-19, he is trying to ‘reform and reset’ India. He promises that his reforms, structurally, will touch ‘land, labour, liquidity and law’. The five-point roadmap includes the economy, infrastructure, systems, people and trust. The plan no doubt is ambitious. When else can such a plan be thought out but now, in a ‘make or mar’ position? The results however depend on the implementation.

Economists and financial experts have raised many questions about the package. Much of the funds, they say, will come as loans. Should that then be considered as part of the total package? The US government’s stimulus of three trillion dollars for industry did not include the relief announced by the Federal Reserve. Then why should India’s package include the RBI’s relief measures? It is unlikely that the Rs 20 lakh crore of funds will be in addition to the Finance Minister’s promised expenditure of Rs 30 lakh crore in the budget.

Emergency credit announced by RBI may have saved some industrial units from immediate close-down. But the majority of the industrial units are suffering from severe liquidity crisis. The banks are doubting whether they can regain the loans they have distributed. The six-month suspension of bankruptcy provisions may have given some immediate relief; but with the economy at the standstill, the bankruptcy seems inevitable.

The ‘bad bank’ idea – that a new organisation buys over the NPAs to give relief to the banks - suggested by Indian Banks’ Association (IBA) may not work. Who will buy the bad loans however well they are repackaged, particularly in these bad times?  Can the banks, with the burden of their NPAs taken off, reposition themselves to lend the industries fast?  Given the nature of functioning of banks, can they reach out to the MSMEs in lightening speed which is what the need of the hour? The PM speaks of the ‘systems’ reforms.  It is here where  the reforms are required most.