Indian stimulus short of needs

The devastation caused by pandemic ensued lockdown may take ten long years to recover and the world economy may continue to be in severe crisis till 2030, forecasts UN report. In 2020, the global economy would shrink by 3.2 percent and in two years would lose $ 8.5 trillion, the UN World Economic Prospects and Situation 2020 (WESP) released on May 13 estimates. Online activities to cost jobs, it warns. Amid such crisis, India’s Rs 20 lakh crore package much through credit boost is far short of the needs. Finance minister Nirmala Sitharaman’s repackaging of the budget is a tough attempt to chalk out a path for presenting a bold government face. May be a government, hamstrung with finances, about Rs 22 lakh crore production losses and revenue fall, is not in a comfortable situation to combat the impending situation. It can be criticised for not doling out enough cash but the reality is the Indian economy is in deep crisis with 1.2 to zero percent growth in 2020. The lockdown has disturbed the production schedule, caused job losses, shrunk demand and uncertainty the world over have put the decision-maker in a fix. The cash support, vital in this situation, the government may have wanted but could not muster it.The GDP growth in developed economies, WESP estimates, will plunge to minus 5 percent in 2020. Global supply chains are to remain disrupted and world trade is forecast to contract by nearly 15 percent this year. “The lesson we learnt from 2008 financial meltdown is that fiscal and monetary stimulus measures do not boost productive investments”, WESP says. It is a difficult situation. So in the announcements of finance minister Nirmala Sitharaman, the government’s cash outgo apparently is limited to government funding of provident fund accounts of workers up to Rs 15000 a month salary and Rs 11,000 crore spending for migrant labourers – including free food grain of Rs 3500 crore.It is all lending from the banks, NABARD or financial institutions as it happened in 2019 when total loans disbursed by banks increased from Rs 87.46 lakh crore to Rs 97.10 lakh crore. he liquidity support to the MSMEs – micro, small and medium, employing about 12 crores; farm sector is either part of the Rs 30.42 lakh crore budget announcement or a bit has been modified. For example, the NABARD was earlier to spend about Rs 90,000 crore, now it would spend Rs 30,000 crore more for farm benefits – loans. The “Shishu” Mudra loans up to Rs 50,000 are to become liability for banks with further Rs 1500 crore interest subvention of 2 percent. The subventions alone are to help the banks as the government would fund it. Most Mudra loans have turned into NPAs of Rs 17250.73 crore as on March 2019.The addition is the loan for vendors, Rs 10,000 each to set up their business. Instead it could have given doles in two tranches to help the needy as well as earn goodwill. The outgo would have remained Rs 5,000 crore as announced. The vendors could have become more self-reliant, Atmanirbhar as Prime Minister Narendra Modi wants. No wonder many, like village artisans, small retailers, poultry, tourism and restaurant sector, do not find support. Despite concern over migrants, the support system has yet to emerge. he developing country economies are to shrink severely, says WESP. Overall, 130 million people globally would slip to extreme poverty by 2030. This indicates that the severity of the crisis would continue for ten years. The low-skilled, low-wagers would bear the brunt.In such a scenario, the FM’s promise to continue with the free food program and universal ration card should provide some succour. She says that for about 8 crore migrants the government created 14.62 crore person-days of work till May 13, free meals and now the government would also ensure rented housing under PM Awas Yojana (PMAY) for them in cities. The migrants actually have got little. The MNREGS has spent Rs 10,000 crore in 43 days to employ 2.33 crore in 1.87 lakh gram panchayats. It means the scheme would need about over Rs 85,000 crore against the present allocation of Rs 61,500 crore. The government should also consider extending the employment for 200 days from the present 100 days. It means the allocation would have to double to Rs 170,000 crore – difficult job but it is worth saving the distressed millions and creating demand. In continuation of this, the FM says that Rs 6,000 crore CAMPA funds would generate jobs for tribals and Adivasis in forest areas. This would ensure cash in their hands. It appears there is a dilemma in cash. On the one hand, the government recognizes its needs and is keen on boosting cash for farmers, rural and other workers at the same time is trying to boost digitization in an extremely poor society. Since 2016, many marginalized businessmen and the poor are suffering as the cash is not easy to have. The cash flow has to match the demand for fast-paced activities in the country.  It would also help overworked banks, which harass the depositors whenever they go for cash withdrawals. The depositor is treated like a pariah. The WESP warns that a rapid surge in online activities will eliminate existing jobs. “The net wage and employment effects could be negative, further aggravating income inequality”. This is a grim warning and India must take corrective steps to boost cash. It also hints at growing debt distress in developing countries, like India, further constraining their ability to implement stimulus measures. This possibly explains the government’s restricted efforts in declaring the fiscal package. The GST earnings are Rs 30,000 crore in March and would be less than Rs 10,000 crore in April. It should scrap Rs 90,000 crore aid announced for power distribution companies (discoms).It is no wonder that income-tax refunds, a natural claim of the assessee, periodic reclassification of MSME categories, 25 percent cut in TDS on business deals have been projected in a big way. The government knows that savings of the people are becoming critical, its revenue earnings are suffering, the economy is thawing and managing the affairs is becoming problematic in an unforeseen situation of corona lockdown. The UK is finding the unemployment doles too large and unaffordable. Expecting India to match it is unrealistic. It is pragmatic to open up early, corona or not.