Liquidity focus continues
Govt provides immediate relief, but demand boosters missing
The second instalment of the government’s relief package to address the effects of the Covid-19 pandemic broadly stuck to the principles that governed the previous day’s instalment. New spending to boost demand, which many have been calling for, have been avoided in large part. The package extends a lot of existing schemes, with a clear focus on liquidity and credit availability for the vulnerable sections, especially migrant labourers, small and marginal farmers, and the poor. The most effective new intervention will obviously be the decision to make available free foodgrain and pulses for two months to even those migrant workers who are not covered under central or state food distribution systems. The measure, costing ~3,500 crore, addresses one of the biggest gaps in ensuring food supplies as a lot of people who migrate to cities for work do not have public distribution system cards in places where they work. Many would, however, argue this should have been done immediately after the lockdown, as suggested by a number of economists.
Union Finance Minister Nirmala Sitharaman said this should help 80 million migrant workers in need of assistance in various relief camps. While she pointed out that this number should not be seen as a reflection of the number of migrants, it was nevertheless a striking factoid about the number of those directly dislocated by the lockdown. It is now up to the state governments to ensure that they are as effective as possible in getting food to migrants. Ideally, it should be cooked food through the help of local bodies. The finance minister also talked about coming up with the “one nation, one ration card” scheme, which permits multiple people on a single ration card to withdraw their ration from different locations — so nobody is tied to a single location. Though the timeline looks daunting, this is a vital technology-driven intervention, and the government expects to cover 83 per cent of all public distribution system beneficiaries by August this year and 100 per cent by March next year.
Other interventions will depend upon action from the banking sector. For example, street vendors will be able to borrow working capital of up to ~10,000 under a special credit facility scheme, which will be launched in a month. Formal finance will have to work hard to find a way to reach these individuals. Since identification of the beneficiaries is a major challenge in such schemes, the government has to ensure that the delivery of intended benefits is not limited by the implementation capacity of the state machinery. This cost, of ~1,500 crore, could easily have been increased at no great loss to the exchequer. Other extended schemes include an interest subvention for affordable housing, expanding the number of Kisan Credit Card holders, and the augmentation of National Bank for Agriculture and Rural Development resources so that the body can refinance agricultural lenders.
Some of these will take quite a while to work — as will the extension of the Pradhan Mantri Awas Yojana housing scheme to include incentives to build rental properties, which will also boost demand. The second instalment of the package should be seen more as providing interim relief combined with longerterm liquidity measures and as a compilation of survival measures.