India’s economy tripped from slowdown to shutdown, from despair to distress in the wake of COVID-19 pandemic. The ubiquitous query about the missing eco-package buzzing across the country was answered this week. Prime Minister Narendra Modi invoked the concept of atmanirbhar aka self-reliance as the key to survival and announced that a massive RS 20 lakh crore package would follow.
Typically the fixes for the India economics story tend to appear in seasons and episodes. In keeping with the trend of the times, the nation logged on, a la Amazon / Netflix every day since Wednesday for the daily dose of prescriptions. As it turns out after all was said and done, a lot was said and much is left to be done.
The package released this week carries the scent of bureaucratic system-centric approach, reactive rather than reflective — for instance, the measures for MSMEs were more about prevention of mass bankruptcies, the re-purposing of food grain allocation to stave off the spectre of unrest. There is no disputing that these were necessary but are not sufficient to protect human capital, which will be vital the day after.
A macro view of the packages unveiled so far reveals triumph of precedence over imagination. It is no mystery that COVID-19 crisis is a double whammy of supply and demand side shocks. The expectation was that the package would address the collapse of demand. The approach of the packages is lopsided — measures mostly focus on the supply side with a little to nudge demand.
The spin doctors of the government drummed Rs 20 lakh crore as one of the largest stimulus packages. Much of the heavy lifting is left to the ‘ifs and buts’ of credit market. Allocations for humane interventions are at best fiscally frail. Economists at the government owned State Bank of India estimated the dent on government balance sheet at around Rs 1.2 lakh crore.
At a granular level, there is much left in askance. Despite the parade of piety, fact is MSMEs struggle to get credit. The promise of easier access to credit has been made thrice — indeed between the announcement of March and May, disbursals of non-food credit has slid and bank investments in government securities has gone up by Rs 1.81 lakh crore. The most noticed initiative is ‘loans with 4-year tenure with a 12- month moratorium on principal repayment’ and credit guarantee cover.
To start with, the cap of Rs 3 lakh crore would cover 45 lakh or less than a tenth of the enterprises. What about cost of the loan? MSMEs, going by rates of PSBs, would have to pay FROM 9.5 per cent to 12.5 per cent — and this when GDP growth is expected to hit negative territory and there is as yet no visibility on ‘opening up’. Meanwhile, dues owed to MSMEs continue to pile up in lakhs of crores despite repeated promises.
The lockdown has evaporated incomes and eroded savings of millions. World over governments chose to transfer cash to people and subsidise payroll costs — especially in capitalist nations where the phrase moral hazard is legit currency. Sure, there is the transfer of Rs 2,000 to farmers, a pre-crisis scheme, and the pay-out of Rs 500 per month to 20 crore women. This is scarcely enough but those who can be vocal though are invested in the notion of care-hope-dole aid as four letter words that people ‘must pull themselves up’ even as millions are trekking home, into an uncertain future.
Indeed, the visuals of migrant labourers on the march symbolises the magnitude of distress. Yet relief is limited to the offer of ‘5 kg of grain per person and 1 kg of chana per family for two months’. Yes, there is the much celebrated ‘one nation, one ration card initiative’. The idea has been around since a decade and has been announced on August 9, 2019, and again on February 4, 2020, and this week. And even partial portability will have to wait till August 2020.
For decades agriculture has been treated insensitively, less as a critical business and more as a case of political charity. This week systemic insensitivity showed up again on the package. The lockdown has impacted backward and forward linkages of farmers — access to inputs and markets — resulting in loss of income. The package while listing moratorium on loans presented as relief the extension of ‘prompt repayment incentive’ for borrower-farmers even as they struggle to survive.
Confounding confusions is a pageant of popular pending ideas. These range from equity for MSMEs, new labour laws, infrastructure funds, schemes for fisheries, aviation and et al. Policies vanquished by peace-time politics have reappeared as Corona warriors. Many were announced multiple times earlier – such as the abolition of Agricultural Produce Market Committee since the 2014 Budget, or the need to amend the Essential Commodities Act to facilitate creation of agri infrastructure which was first mooted by the Committee on Agriculture Reforms in July 2014. The shorter duration distance for flights was FIRST mooted by Naresh Chandra Committee in 2004.
There is no disputing the need to leverage crisis to engineer change. However, context and circumstance matter as does sequencing — relief must precede the rally for reforms. The politics of economics is sustained on the matrix of the necessary and the sufficient. Those arguing about costs would do well to remember that there is a price to pay for pusillanimity