Stimulus sets the ground for structural reforms
If science progresses funeral by funeral, economies emerge stronger crisis after crisis. The government’s Atmanirbhar Bharat, or a self-reliant India, is an effort in this direction. If the 1991 financial crisis triggered first generation reforms, the economic package announced by Prime Minister Narendra Modi on Tuesday appears to have set the ground for structural reforms nearly three decades later, prompted largely by the Covid-19-pandemic-turned-global-economic-crisis.
Finance Minister Nirmala Sitharaman, via her daily dispatches this week, will detail how the Rs 20 lakh crore will be neatly sliced across industries and individuals. In the first lot announced Wednesday, the biggest dole went to MSMEs with the government hinting that time for half-steps has ended.
From redefining MSMEs to extending Rs 3 lakh crore collateral-free loans to partial credit guarantees to disallowing global tenders in government procurements for up to Rs 200 crore, to clearance of pending dues within 45 days, MSMEs have struck a gold vein.
Some of the other significant measures include Rs 90,000 crore liquidity support to ailing discoms, reduction in TDS and TCS rates, and extension of income tax filing dates. But going by cross-country experiences, it’s likely that fresh direct fiscal stimulus will be limited to Rs 4-6 lakh crore, with the rest comprising loan guarantees and conditional capital infusions.
Typically, governments raise funds via taxes, printing money or borrowing debt. This crisis, like all others, has a huge cost and eventually the bill will be picked up by taxpayers, stretching to future generations. As Chief Economic Adviser K V Subramanian quipped, there are indeed no free lunches, but what’s missing is the action plan on how the government plans to fund the ambitious stimulus plan.
People are our capital, but India already lost its chance to China. Now, it’s too late to capitalise labour amid a rising chorus of isolationist policies, and given automation offers superior economies of scale. The least the government can do is to seize the moment and overhaul our archaic laws to revive domestic demand.