The Rs. 20-lakh crore package announced by the central government has ostensibly failed to inspire the sentiments of rating agencies, the business fraternity, economists, and opposition politicians who reckon it to be more of a measure for long-term and not making much sense for the short term, immediate need. Former Finance Minister P. Chidambaram lamented that the genuine stimulus cost of the package is just 0.9% (`1.86 lakh crore) of the GDP while international rating agencies Morgan Stanley (0.7% of GDP), Nomura (0.9%), Citibank (1%) and HSBC (1%) have also termed the package inadequate in contrast to the big economies like Japan (9.13%), England (5.20%), Germany (5.11%) and United States of America (4.57%). The package also could not decisively lift the mood of the stock market, which is a leading indicator of trading perspectives.
Economic duress driving publicity tricks
In the recently announced 2020-21 Budget, the central government had projected a deficit of approximately Rs. 8 lakh crore for this fiscal. However, an impulsive announcement of the lockdown and its extended nature has weakened economic activities and the government’s deficit has now touched Rs. 12.2 lakh crore. Simultaneously, the release of a package of Rs. 1.7 lakh crore escalated the deficit to almost Rs. 14 lakh crore. The wretched financial condition of the government compelled it to adopt and publicise such measures which could preserve credibility of the government as well as control the deficit. Amid all this, the Indian banking system turned out to be the scapegoat. Even before the initiation of the Covid problem, banks were struggling with NPAs of nearly Rs. 10 lakh crore. Further, keeping in consideration the precarious condition of the Indian banks, the RBI Governor had instructed them not to distribute any dividends and directed them to make provisions to offset the negative impact of the moratorium announced for the payment of interest and instalments - way before the announcement of the Rs. 20 lakh crore package. By putting the entire responsibility of the package on the banking system, the central government has liberated itself from the cycle of imposition of solidarity taxes on big households and of offering benefits to the affected masses.
Reality of big numbers
Finance Minister Nirmala Sitharaman on her first day of the five-day broadcasting series allocated Rs. 3.7 lakh crore for micro, small and medium enterprises (MSMEs) to enable 45 lakh units to resume operations. Banks have been stipulated to provide funds to these units in the form of loans with a guarantee from the government. However, the total number of MSMEs in the country is 6.35 crore. Under the given provisions, the government seems to have omitted almost six crore units.
Secondly, low demand in the economy has circumvented the problem of debt and the Indian government is still attempting to solidify economic activities through the latter. It appears that the government’s naivety is not letting it understand the fundamentals of the economy. The government had already tried to ignite the cycle of economic activities by extending a package of Rs 1.45 lakh crore to big corporates last year and yet the choking of demand failed to move the wheels of the economy. Now, when demand is declining and expected to fall more in near the future owing to the massive breakdown of economic activities (because of the lockdown), the government still appears to be innovating by offering loans to small and medium enterprises. Even if it is assumed that banks coerce some financially sound units to take loans with the government’s sovereign guarantee, chances of non-repayment of interest and the installment amount by these units are high because of the lack of sales and profits. In case these units fail to fulfil their financial liabilities, the financial burden of debt waiver will fall on the already ailing banks and the government.
After nearly 50 days of the lockdown, the government woke up to provide free 5 kg of food grains (wheat or rice) and 1 kg of gram per person at the cost of Rs. 3500 crore to eight crore migrant workers who are not covered under the National Food Security Act because of their non-accessibility to ration cards.
An in-depth analysis reveals that a provision of Rs. 438 per migrant has been made for the months of May and June which effectively comes out to be Rs. 219 per month. If the market price of gram is considered (Rs. 69 per kg), then five kg of wheat or rice turns out to be Rs. 30 per kg. Consumption of five kg of wheat or rice and one kg of gram per month means consumption of 167 gms. of wheat or rice and 33 gms. of gram per day. Since a normal human being eats food at least twice a day, it means 83 gms. of wheat or rice and 17 gms. of gram. By this calculation, a total 100 gms. are available to these migrants per diet. Additionally, the Rs. 219 per month turns out to be considerably less than the standard set for the below poverty line criterion for rural areas (Rs. 27 per day or Rs. 540 monthly).
The government has doled out the same treatment for workers under the MGNREGS programme. Although the government has increased the allocation amount from Rs. 61500 crore (as provisioned in budget 2020) by Rs. 40000 crore, the overall sum of Rs. 101500 crore seems to be inadequate in light of the reverse migration towards villages. It has already been pointed out that Rs. 3 lakh crore is needed in case all 14 crore job card holders (registered) are to be provided with 100 days employment. Besides, the government has skipped making any provision to provide employment to the unemployed people living in urban areas.
While governments around the world are actively working to strengthen the health sector for the benefit of the people in this hour of need, the Modi government is taking this as an opportunity to push the country towards privatisation and build a debt-driven economy. Hardly any efforts have been made by the government to provide respite to the ailing population by strengthening social sectors.