Two days after announcement of lockdown, Finance Minister Nirmala announced a relief package of Rs. 1.70 lac crore under Pradhan Mantri Garib Kalyan Yojana. This was meant to benefit the poor to help them fight the battle against Covid 19.
It was criticized by many saying that it would amount to merely <1% of GDP, while financial package of US was 13% of GDP and that of Japan was 21%.
Probably stung by the criticism, on May 12th, Modi announced a mega Rs 20 lakh crore which was called Atmanirbhar Bharat Abhiyan. While announcing so, he said it worked out to roughly 10% of GDP. He left the job of explaining details to FM. She took 5 days to explain the in and out of the package.
On the last day, reporters asked FM what would be additional burden on budget because of this package but FM did not respond. Experts opine that it would be between Rs.1.5 – 3.0 lac cr. Since budget 2020-21 was planned for expenditure of Rs.30.42 lac crores, this would amount to <10% of it. Many commented that half of the aspects of this package were already promised in budget.
Besides, government used this package to announce more steps towards privatization. FM announced nearly 40 schemes but most of them are related to reforms which will not be of any immediate help to the economically hit Indians. Even the stock market did not react enthusiastically to the package.
This is because the package failed to address the main issue of strengthening the demand side and focused only on supply side. If you do not ensure that money flows into consumers’ hands to buy goods, what is the use of funding manufacturers, experts asked. If they cannot sell the goods, they cannot repay the loans and banking sector deteriorates further. Some experts suggested suspension of GST for 2/3 months to boost sales of goods.
FM announced Rs.3 lac cr. loan facility without any bank guarantee to MSME (Micro, Small and Medium Enterprises). As per Nitin Gadkari, government, PSUs and corporates owe Rs. 5 lac cr. to that sector. If they pay back their dues to the sector, MSME need not even borrow from banks.
States expected a lot from this package but they were not given any promises. Though inter-state labour is center’s responsibility as per constitution, center has pushed the burden on to states’ shoulders.
States requested raise of FRBM (The Fiscal Responsibility and Budget Management) level to allow them to borrow from outside. FM said they can borrow only 0.5% of their GSDP without any conditions. They may borrow up to 5%, but conditions apply, she warned.
Center has been trying to usurp all the state powers in to its hands. It decried that donations from Corporate sector under CSR (Corporate Social Responsibility) scheme should go to PM Cares Fund only but not to state-based funds. PMO is refusing to reveal details of the donations to PM Cares fund.
In these circumstances, states and public in general have to depend upon economic stimulus given by central government under this relief package. And how big it is? “The Hindu”, in its editorial said “The fiscal impact of the package is estimated by economists at between 2-3% of GDP and that includes drawals from provisions already made in the budget for the fiscal.”
Many brokerage firms are less charitable because most of the relief is either regulatory in nature or reflecting in its contingent liabilities rather than explicit budgetary support. USB Securities says it is 1.2% of GDP; Bofa Securities says 1.1%, SBI - 1%, HSBC - 1%, HFL - 1%; IIFL-1%; Edelweiss Securities - 0.85%, Nomura - 0.8%, CLSA - 0.8%, Citi - 1%. But BJP wants us to believe it is 10% of GDP.
Written by M.
