Disappointed with Finance Minister’s announcements regarding financial stimulus: Chidambaram

A day after PM Narendra Modi announced a financial stimulus package worth Rs. 20 lakh crore which is 10 percent of the country’s GDP, Finance Minister P Sitharaman addressed a press conference on Wednesday to provide the details of the package. While the ruling party and its supporters have gone overboard in their praise for the size of the ‘package’, former finance minister P Chidambaram debunked the claims made by Sitharaman.

Saying that there was nothing in the package except a modest support for the MSMEs, Chidambaram said the Modi government was “a prisoner of its own ignorance and fears”.

Chidambaram issued a statement after an analysis of the much-touted stimulus package.

His statement can be read here:

Last evening, the Prime Minister announced an Economic Stimulus Package to re-start the stalled economy and stated that its size will be Rs 20 lakh crore. As expected, and as perhaps it was intended by the government, it grabbed the headline. The page, however, was blank.

We were promised that the details of the fiscal stimulus package would be announced by the Finance Minister over the next few days, beginning

today. It was therefore with great expectations that I listened to the FM at 4 pm today.

What did the FM tell us?

• That there will be a collateral free loan programme to 45 lakh MSMEs, backed by a Credit Guarantee Fund of Rs 3 lakh crore, and some other measures including Rs 20,000 crore subordinate debt and Rs 10,000 crore equity fund;
• That government will extend Rs 2,500 crore liquidity support to EPF contributions;
• That government will give credit guarantee for NBFCs investing in debt instruments of MSME, HFCs and MFIs (Rs 30,000 crore);
• That liquidity will be provided to generating companies and discoms;
• That time will be extended by 6 months for government contracts;
• That TDS rate will be reduced up to 31-3-2021 (Rs 50,000 crore) and tax refunds to all will be expedited. These are liquidity related and regulatory measures.

I wish to keep my comments brief and focused.

Let me first point out that there is nothing in what the FM said today for the lakhs of poor, hungry and devastated migrant workers who have walked — and many thousands are still walking — back to their home states. This is a cruel blow dealt to those who toil every day.

There is also nothing by way of cash transfer to the bottom half of the population (13 crore families) who have been pushed into destitution.

Only yesterday, Prof Thomas Pikketty pleaded for cash transfers to the poor.

The FM announced some support measures for MSMEs, although my comment is the measures were skewed in favor of the larger MSMEs (about 45 lakh MSMEs). I think the bulk of the 6.3 crore MSMEs were left high and dry. We welcome the offer of subordinated debt (Rs 20,000 crore) and equity corpus fund (Rs 10,000 crore), but we will await the ‘terms and conditions.

The devil is in the detail. On the credit guarantee fund, it is not the entire Fund that will be actually spent. The expenditure will be limited to the extent of NPAs in the outstanding guaranteed credit to MSMEs. Assuming an NPA level of 20-50 percent, the actual expenditure over the period of the loans (which may be years) will be a maximum of Rs 3,00,000 crore. We will also count the Rs 30,000 crore credit guarantee to NBFCS.

We will, therefore, include Rs 3,60,000 crore in the Rs 20 lakh crore package..

I refrain from commenting on liquidity related measures. Such measures do not amount to fiscal measures of support and nowhere in the world are they included or counted in a fiscal stimulus package?

Where is the rest of the Rs 16.4 lakh crore? This government is a prisoner of its own ignorance and fears.

The government must spend more, but it is not willing to do so. The government must borrow more, but it is not willing to do so. The government must allow states to borrow more and spend more, but it is not willing to do so. Except for the modest MSME package, we are disappointed with today’s announcements