On 12th of May, 2020, the Prime Minister of India, Mr. Narendra Modi addressed the citizens of the nation, in an attempt to motivate them to strengthen their resolve in overcoming the on-going crisis. In regard to this, he announced a special economic package of Rs. 20 lakh crores, constituting 10% of India’s GDP, to provide stimulus to the fight against the economic damage caused by COVID-19, and to prepare India for a tough competition in the global supply chain by increasing the efficiency of various sectors like cottage industry, MSMEs, agriculture, industrial sectors and others. The economic package will focus on land, labour, liquidity and laws and would serve as an important link in the “Aatmanirbhar Bharat Abhiyaan” standing on the pillars of Economy, Infrastructure, System, Vibrant Demography and Demand.
Following the PM’s address, our Finance Minister, Dr. Nirmala Sitharaman, through a set of conferences, laid out the specifics of the package divided into 5 tranches. This article seeks to explore the details, benefits and drawbacks of the same.
The Package in Details
Some of the Key Highlights of the Package for various sectors in several tranches have been provided below:
EARLIER MEASURES
The “Pradhan Mantri Garib Kalyan Yojana” provided the following:
- Foodgrains and gas cylinders to the needy for three months.
- ₹500 to women Jan Dhan account holders for three months.
- Relief to construction workers via a Welfare Fund.
- Insurance cover to health workers.
- District Mineral Fund to facilitate greater medical testing.
- Increased minimum daily wage rate
- An increased limit of collateral-free loans for Women Self Help Groups.
Apart from the aforementioned activities, the Indian government has also provided relaxation in Statutory and Compliance matters such as extending the last date for Income Tax Returns and filing GST returns, allowing for 24*7 customs clearance till 30th June 2020, and others. It has also sanctioned Rs. 15,000 crores for Emergency Health Response Package and issued pending income-tax returns up to Rs. 5 lakhs.
RBI’s Monetary Measures:
- Reducing Cash Reserve Ratios.
- Providing Targeted Long Term Repo Operations for fresh deployment in investment-grade bonds, commercial paper, and non-convertible debentures.
- Increasing banks’ borrowing-limit under the Marginal Standing Facility.
- Special refinance facilities for NABARD, SIDBI and the NHB at policy repo rate.
- 3 months of moratorium on payment of all installments and interest on working capital facilities.
MSMEs AND OTHER BUSINESSES
- Availability of collateral-free, automatic loans with 4-year tenure.
- 25% reduction in the rate of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS)
- Equity infusion and Equity Support for MSMEs.
- Providing a new definition of MSMEs with additional turnover criteria to incentivise them to grow.
- Amendments of General Financial Rules to disallow Global tenders up to Rs.200 crores.
- Extension of the due date of all income-tax return for FY 2019-20.
AGRICULTURE[3]
- Additional Emergency Working Capital for farmers through NABARD
- Provision of concessional credit to PM-KISAN beneficiaries.
- Promotion of ‘Vocal for Local with Global outreach’ vision via schemes formalising Micro Food Enterprises.
- Facilitating risk mitigation, assured returns and quality standardisation for farmers.
- Implementation of schemes for sustainable development of marine and inland fisheries, development of herbal cultivation, animal husbandry and beekeeping.
- Subsidies on transportation and storage.
MIGRANTS, LABOURERS and OTHERS[4]
- Setting up shelters providing food and water to migrants by utilising State Disaster Response Fund.
- Launching schemes to provide free food supply and affordable rental accommodation to migrant workers.
- Providing employment opportunities to the urban-poor by mass production of sanitizers and masks.
- Launching a Special Credit Facility for Street Vendors.
- Universalizing the minimum wage right and implementing the statutory concept of National Floor Wage to reduce regional disparity in minimum wages.
- Boosting the housing sector and the middle-income group through the extension of the Credit Linked Subsidy Scheme.
NEW HORIZONS[5]
- Fast track Investment Clearance through Empowered Group of Secretaries (EGoS)
- Implementing schemes to upgrade industrial infrastructure and bring about beneficial policy reforms.
- Encouraging private sector participation and boosting investment in several sectors, including space activities.
- Facilitating Efficient Airspace Management for Civil Aviation.
- Improve autonomy, accountability and efficiency in Defence Production.
- Implementing a Tariff Policy Reform pertaining to Consumer Rights, Industry Promotion and Sector-Sustainability.
GOVERNMENT REFORMS[6]
- Promoting India as one of the easiest business locations by modifying the Ease of Doing Business Reforms relating to easy registration of property, fast disposal of commercial disputes and simpler tax regime.
- Facilitating Technology-Driven Education via PM eVIDYA programme
- Increasing investments in the Public Health Sector to not only combat the present pandemic but also prepare for future pandemics.
- Supporting State Governments & promoting state-level reforms.
- Modifying policies to allow for the privatization of various sectors, while upholding the prominence of Public Service Enterprises in defined areas.
Overall Stimulus Provided by the Aatmanirbhar Bharat Package
| ITEM | Allocation (in Rs. Crores) | |
| PART 1 | 5,94,550 | |
| PART 2 | 3,10,000 | |
| PART 3 | 1,50,000 | |
| PARTS 4 & 5 | 48,100 | |
| SUB-TOTAL | 11,02,650 | |
| EARLIER MEASURES INCLUDING PMGKP | 1,92,800 | |
| RBI MEASURES (ACTUAL) | 8,01,603 | |
| SUB-TOTAL | 9,94,403 | |
| GRAND TOTAL | 20,97,053 |
Problems
The earlier fiscal relief measures along with RBI’s measures constitute ₹9,94,403 crores, which leaves an effective amount of ₹11,02,650 crores. Thus, the immediate fiscal boost announced with such grandeur by the government is quite less than the promised amount because of the inclusion of RBI’s monetary measures, despite both being independent institutions. Direct investment by the government in the form of a boost to the aggregate demand guarantees immediate impetus to the economy, however, that might not be the case with the government’s indirect measures and RBI’s credit easing because the banks, instead of lending, might park the money back with the RBI, thus, rendering its help ineffective. Even if the banks transmit the liquidity measures from RBI to the citizens, the transmission procedure will not be smooth due to the prevailing inefficiency of monetary policy transfers.
The economic package includes a lot of measures spread over 5 tranches. However, there exists the problem of implementing those measures. A classic example is the provision of collateral-free automatic loans to MSMEs. There is a high risk of non-return to banks in such cases unless the businesses end up earning high-profits amidst a global crisis, that is if the MSMEs get the required loans after overcoming the hurdles of meeting the high credit score criteria, bearing high processing costs followed by tedious procedures, and still not receiving the entire amount applied for.
Conclusion
Both ‘Aatmanirbhar Bharat Abhiyaan’ and the ‘Make In India Campaign’ attempt to attract Foreign Direct Investment by laying emphasis on the promotion of local products to help with the declining job market. However, this causes a critical problem in a developing country like India which needs to depend on cost-effective imports of several products in which it does not have a comparative advantage and the domestic production of which will lead to increased manufacturing cost, thus, leading to the loss of a competitive edge in the Global Market. Although, Aatmanirbhar Bharat Abhiyaan does possess an advantage due to the inclusion of agriculture, which had been neglected all this while.
Although the package is very comprehensive and caters to the needs of all people, past history of failures due to the presence of corrupt bureaucracy raises the question of whether the relief package will have its desired effect. However, if the package is properly implemented and people are educated about the schemes through various drives and trained to utilize the benefits available to them, then there exists the possibility of success of the package through economic upliftment of the nation.
