Ab ki baar, udhaar hi udhaar: Govt adds insult to injury by offering loans to the poor
The PM’s promise of a Rs 20 lakh Crore financial package has ended in a whimper; though only a half of it was realistically expected, the FM has committed barely one-fifth of lowered expectation
The announcement made by the Prime Minister on 12th of May of 20 Lac Crore economic package amounting to 10 percent of India’s GDP was universally welcomed. India believed that the Government was serious and committed to alleviate the distress of millions of workers, migrant labour and the urban poor and would address the challenges confronting the economy.
Expectations soared and for the next five days, attention of the industry, entrepreneurs and workers was focused on specific details of the promised package to revive the shuttered economy following the nationwide lockdown since 25th of March.
Finance Minister Nirmala Sitharaman’s announcements however crushed all hopes and expectations. The initial euphoria gave way to despair and disappointment: migrant workers, poor and vulnerable citizens of India have been let down by the Government, which has shown callous disregard to their pain and suffering.
It was all along understood that the 20 lac Crore package may include the monetary liquidity measures announced earlier by the RBI and the Rs. 1.7 lac Crore fiscal package announced on March 27 by the Finance Minister. These together accounted for 9.74 lac Crore Rupees and an additional Economic Package of Rs. 10.26 lac crore was the realistic expectation.
But in response to the worst crisis since 1947, the Central Government’s fiscal relief has turned out to be a measly one percent of GDP. The additional fiscal cost to the Government will be less than Rs two lac Crore, a pittance considering the enormity of the crisis and distress of millions of poor and vulnerable people. India’s stimulus is the lowest in the world and has come as a deep disappointment.
A cruel joke: Governments across the world have loosened purse strings to support industry, workers’ wages and alleviate the pain of the people. But in India the measures announced are geared towards easing liquidity over a period of time and lack the required breadth and depth. The Government has misled the people and needs to be reminded that there is a difference in providing stimulus to the economy and merely offering loans and credit to already stressed industry and the distressed poor. Ithas added insult to injury.
The measures announced also include budgetary announcements, allocationsalready made and front loading of existing schemes. Those who have lost their wages and income, the migrant workers, farmers and farm labour have been let down badly. There is no transfer of funds to the states, which are facing the brunt of the crisis.
Providing 5 kg food grains to the poor and 8.5 Crore of stranded labouras per Finance Minister’s own account is too little and has come too late. The portability of benefits allowing ration card holders to withdraw rations anywhere will take months before the impact is visible on the ground. The government’s economic package came across as a cruel joke for a majority of Indians as migrant workers began walking hundreds of kms to reach home in massive numbers after the Finance Minister elaborated on the Prime Minister’s plan.
The government’s decision to give Rs 500 per month to women JanDhan account holders only highlights the inadequacy of our response as it tuns out be just about $7 per month, far below the international basic levels of $ 2.5 per day or about $75 per month which is equivalent to around Rs 5,600 per month. Even with a basic per capita consumption of Rs 500 per person, a family of four would need around Rs 2,000 for meeting the basic needs of life.
Informal sector and MSME’s were already the worst hit: It is important to put things in perspective.
The Corona Pandemic is an unprecedented crisis for the world. The virus has spread across the world pulverizing communities, countries and continents. No country has remained insulated through the severity and mortality rate varies.
A crisis of such an enormity has not confronted humanity in living memory. The 28 states of which 11 are controlled by the Opposition – Congress and regional parties together. This bipartisan consensus was made possible in a federal country as containment of the virus was considered necessary and a national priority.
The shutdown of the economy has inflicted unbearable social and economic costs. Millions of workers have lost work and wages. Estimated 122 million jobs in formal and informal sectors are lost and unemployment rate has risen to an all-time high of 27.1%. ILO estimates suggest that 40 Crore people will be pushed into poverty which would effectively undo years of progress made in reducing chronic poverty.
The informal sector which employs 90% of the workforce and the MSME’s (Micro, Small and Medium Enterprises) together accountfor two-thirds of India’s production and are the worst hit. As industrial production has crashed, India is feared to have permanently lost over seven percent of its GDP and is likely to register negative GDP growth this financial year.
Lockdown was hastily imposed by the Central Government without any advance preparation or coordination in a country spread over a large geographical area. There were no consultations with the State Governments. Abrupt cancellation of trains, buses and ban on movement of all vehicles led to confusion and despair. Millions of poor people were stranded without food and money. Untold suffering were inflicted upon them.
The fallout on large number of casual workers and migrant construction and farm labour has been severe. Migrant labour desperate to return to their native villages were stranded and trapped in harsh conditions. They were denied their dignity and rights as equal citizens of the Republic. The migrant’s crisis is Government made and a humanitarian tragedy which will leave a painful scar on the very soul of India.
A ‘Union’ of States?: The enforcement of the first lockdown by the Centre without consultations with states raises fundamental questions. India is a federal country and in the constitutional scheme of things healthcare is a state subject and contagious diseases is on Concurrent list. Also, trade and commerce within the state and industries are state subjects.
But all decisions were arbitrarily taken by the Centre under the NDMA Act of 2005. This approach has long term implications on Centre-State relations. Ideally, the challenge of Corona pandemic should have been addressed in a spirit of partnership between the Centre and the state governments. Also, the Centre should have transferred funds as requested by the states for a robust, united response.
The stimulus does not address the urgent issues and therefore will not make any meaningful impact. The Government’s focus has been primarily to fix supply side issues. This is a flawed approach as the demand and consumption issues which need priority attention have been largely ignored. Easing of liquidity and availability of credit to MSME’s is unlikely to make a major impact in the near future. Many industrial sectors were experiencing a serious down turn since mid- 2019. Industrial production has been declining since before the advent of the COVID-19 crisis.
About one third of the installed capacity was unutilised and investment rate has been the lowest in decades. Private sector has neither the appetite nor the capacity to invest. Higher public spending alone can keep the engines of economy running.
Phased lifting of the lockdown has seen slow resumption of industrial activity including production of essential goods and medicines. Movement of cargo and limited retail trade will ease the situation. However, the revival of economy and jobs will continue to face challenges. Factories, construction and Infrastructure sector will face crippling shortage of labour. Demand and consumption will take long to revive.
The least the government could have done at this stage is taken care of the provident fund payments for the MSME sector and possibly for the larger companies. This would have given them some financial space to save as many jobs as possible.
The stimulus does not involve additional public spending. There is an urgent need to provide free food to the migrant labour and urban poor who have lost livelihood. Rs 7000 cash transfer to poor households for a period of three months should be committed by the Government considering the scale of economic distress. The additional allocation of Rs 40,000 crore for MGNREGA necessitated by the return of millions of workers to the villages is welcome. It would help if the Government considers raising wages to Rs 300 per day across states with 150 days of guaranteed work.
Economic package of Rs. 10 lac Crore should be announced at the earliest. Time is running out and any further delay will do irretrievable damage to the economy. Issues of revenue deficit and inflation should be kept in abeyance for a year. True, there is a constraint of resources and acute revenue shortfall. Government can finance the package through additional market borrowing against Government guaranteed bonds and part monetization of deficit. This is an extraordinary crisis and calls for an extraordinary response.