The recently announced stimulus package may not achieve the desired goals of providing relief to the unemployed or in reviving the economy, the author explains that these reforms are not fiscal reforms and will not help the economy revive.
COVID-induced recession is stalking most countries of the world and stimulus packages have been announced by many. The main purpose of these packages has been two-fold: one, providing relief to those who have lost jobs and two, reviving production by providing financial support to businesses. Both of these require putting incomes in the hands of the jobless. These incomes, apart from providing a crucial safety net, help create the necessary demand for production when it revives. What this calls for is a typical Keynesian remedy of increasing government expenditures while allowing fiscal deficits to balloon for a short period of time as was done in the USA and the UK. When the USA announced a package of $2 trillion, this represented actual government expenditure as did the package announced by the UK.
There was great hope that the Rs. 20 lakh crore package, announced by the Prime Minister on 12 May 2020, would provide the much-needed support to those who had suffered the most in the last few weeks, especially, migrant workers and small businesses. The details of the Atmanirbhar package as announced on 13 May 2020 belie these hopes. While it has created the necessary impact in the media and has garnered much publicity, its impact on the economy will be far more modest. The Rs. 20 lakh crore package includes the liquidity measures of Rs. 8 lakh crore announced much earlier by the RBI and which are clearly not fiscal in nature.
Rather incongruously, included in the package are items such as special liquidity facility for mutual funds, collateral-free automatic loans for MSME, credit guarantees, and liquidity through TDS/TCS reduction among others. None of these is fiscal measures and clubbing all of these together helps inflate the size of the package but is unlikely to have an immediate impact on the economy. Even worse, these measures provide very little relief to those who have suffered the most as a result of the lockdown, namely, the millions of migrant workers. Possibly, in belated recognition that nothing has been done for this suffering group, on 14 May the Finance Minister announced some fig-leaf measures such as free rations for 8 crore migrants for 3 months.
Disappointingly, there is a sleight of hand here. Rs.3500 crores for foodgrains to migrants will be paid for by the Centre but 3 meals per day plus shelter for migrants and urban poor will be provided by State Governments. It needs to be borne in mind that states have a right to these funds in the event of a disaster and their disbursement does not depend on the generosity of the central government.
It would be a travesty to call the Atmanirbhar package a stimulus or a relief package by any stretch of the imagination. Not only does it give short shrift to those in dire need of assistance but its impact on the economy is very doubtful. With the GDP for the first quarter of 2020-21 threatening to fall by as much 16-20% and unemployment already as high as 27.1%, a long period of uncertainty and economic misery awaits large sections of the Indian society.
(Ajit Karnik is a Professor of Economics at the Middlesex University, Dubai)
Note: This is an opinion piece, and the views expressed are the author’s own.