India's five-part Atmanirbhar Bharat's season finale concluded on Sunday.
Impressively, the Rs 20.9 lakh crore economic package is nearly 70 per cent of FY21 Budget at Rs 30.4 lakh crore in size. So when Finance Minister Nirmala Sitharaman began the series on Wednesday, it was presumed that the government was in for a penny, in for a pound.
The sheer size gave everyone a thrill, and hopes ranged from short-term demand boosting measures like cash transfers to long-term reforms all rolled into one.
But it's termed an economic package as it combines monies coming from the RBI, banks and lastly the government.
Put simply, India is going Dutch to bear the costs of its economic revival. But even within this shared national responsibility, much of the burden is being thrust on banks, with direct government spending hidden like tiny currants in a fruitcake.
There was an elevator pitch for income support to households and incentives to businesses, though the best bits of the package included reforms - be it in agriculture or industry. But hopes of the latter reviving demand in the near-term will be akin to mistaking luck for skill.
At the heart of it, the package was to address three things -- relief, revival and reforms -- which can't be ranked with a uniform scorecard. If the government did well on one, it could have done better on another and on still others, there's much left to be desired.
First, on the relief front, the government was on the money announcing cash transfers to households and farmers, including supply of free food grains, and LPG cylinders for three months. Now it's extended to 8 crore migrants, but whether one can expect follow-up tranches should the lockdown prolong or if it takes longer to restore normalcy is up for question. The last of the 3-month dole ends next month.
While critics and the opposition pounce that the amount given was pin money, with Nobel laureate Abhijit Banerjee suggesting cash transfers to the poorest 60 per cent, fact is no arithmetic alchemy can truly arrive at a satisfactory level, particularly when it's free. The US sent jaw-dropping $1,200 cheques to even those with stable jobs, yet it's considered inadequate. Moreover, such comparisons can't be drawn as tax compliance is far superior in countries splashing cash than our own.
The government did reasonably well on reforms, though success depends on when it gets down to brass tacks. Some of the champions include amending the 30-year-old Essential Commodities Act, a new legal framework for contract farming, and overriding the agricultural produce marketing committees (all of which need the Parliament nod), excluding insolvency proceedings for 12 months besides raising the threshold to initiate bankruptcy proceedings to Rs 1 crore from Rs 1 lakh, opening up space sector for private players, privatization of power distribution in union territories, banning of specific defence imports, raising FDI in defence manufacturing by up to 74 per cent.
These are a force for good, but unless the legislative aspect is moved with urgency, one wouldn't want to bet their dollars to donuts.
Sitharaman's more-than-hour-long media briefs in the past five days were replete with announcements, but several had to go through a deep filter segregating old from new. For instance, opening up commercial coal mining, decriminalisation of the Companies Act, foreign listing of securities, privatisation of six new airports were measures of the past. So, the FM should have walked an extra mile champing at the bits to score a point.
Meanwhile, revival measures via direct fiscal stimulus to boost demand for now are as unlikely as a trip to the sun. It's evident that the government's belief in counter-cyclical measures doesn't run deep.
Sitharaman also clarified that she wasn't here to play duck and drakes, but instead be sensible not to indulge in 'spendthrift.'
She refused to give her read on the fiscal deficit numbers, but additional market borrowings for FY21 at Rs 4.2 lakh crore offer clues on the government's initial assessments.
Given the Covid-19 related direct government expenditure works out to a little over Rs 1 lakh crore, the shortfall will be over Rs 3 lakh crore, higher than last fiscal. This, though, is subject to change. As Sitharaman noted, it's only May and we have 11 months to go. It's quite possible that the tax shortfall may widen, or narrow or the government may resort to expenditure compression as it did in recent years.
Policy wonks batting for a fat stimulus package to make a quick and sharp recovery should recall Milton Friedman's 'Spending is taxation' thumb rule. It's pertinent here to recall the corporate tax cuts foregoing nearly Rs 1.7 lakh crore revenue.
Besides, the FM also announced a tax salad for personal income taxes, which most expect is the first step to rate rationalization. Above all, a sense check tells us that any additional fiscal expenditure will not only make income tax cuts that much longer, but also put taxpayers at the risk of newer taxes.
That said, governments must borrow and invest to boost aggregate demand if the intent is to prevent slowdowns from morphing into recessions or recessions from snowballing into a depression. That job to an extent will now be taken up by state governments, whose borrowing limits were raised by 2 per cent with some riders.
By identifying criteria for increased borrowings, the Centre perhaps has put thrust on states not to abandon welfare measures including health spends or free food supplies. Even this will widen the deficit, although in a roundabout way, but it'll give the Centre a breather from deficit scolds.
Frankly, there are no proven role models as to what works even in a known crisis. Countries that indulged either in austerity or counter-cyclical spending met with limited success. Britain's austerity drive may have elevated austerity as the word of the year in 2010, but not so much its fortunes. US President Herbert Hoover's naive faith in limited government interventions morphed a bad recession into the Great Depression.
That said, surplus spending too can't solve all the economic ills. Advanced nations' whatever-it-takes approach, printing unlimited money, only aggravated the private debt crisis perpetrated by bankers and financiers into sovereign debt crises.
It's not that India is bust or broke. Yet, the only choice is also to go big or go bankrupt, economically that is. Perhaps, Sitharaman needs to look no farther than her colleague Anurag Thakur and his emboldened advice to companies 'aap kalpana kijiye', and spur to action.