Prudence, not profligacy, is the way out

The distressful images of fleeing migrant workers, closed businesses and trade have more than overwhelmed us. But the suffering of these people due to absence of jobs is not the only narrative that colours our perception due to the pandemic.

Prior to the spread of the novel coronavirus, a severe slowdown in the economy had already sucked out the spirit of growth and accentuated distress across all sections of the society. Right now, many of us are not sure whether the Union government and the states have done enough by way of stimulus package, liquidity and pledge to usher in reforms of key areas to put life back into the economy. Some of us have already concluded that the Union government is rather sticking to fiscal prudence than showing any willingness to loosen its purse strings.

It is no secret that Prime Minister Narendra Modi is no admirer of open freebies though he has made exceptions in the past for some specific schemes directed at the very poor. He has been very particular about his government maintaining the fiscal-deficit discipline and several times rejected suggestions for just printing more currency notes to tide over the situation.

That has meant that the populist route of directly putting money in everyone’s hands just to tide over the present anguish is out of question. Rather, he would prefer to invest in the future and work on infrastructure of various sectors and roll out much-delayed reforms that everyone expected from him when he became PM in 2014. Empowerment — and not entitlement — is the mantra for growth.

That is why Finance Minister Nirmala Sitharaman’s announcement of series of measures valued at Rs 20 lakh crore has provoked a mixed bag of reactions.

Of course, there are critics who think that, beyond the provision of Rs 3 lakh crore to guarantee loans to the micro, small and medium enterprises (MSME) sector from commercial banks, there is only re-allocation of funds aimed at various sectors of the economy. As for the MSME sector, which generates lot of employment, it is also entirely dependent on the revival of the rest of the domestic economy. They argue that even the provision of loans amounting to Rs 90,000 crore from power public sector units to distribution companies does not address the real problems of lack of demand though it may solve some major ills of the electricity sector.

The Rs 40,000 crore-increase in the allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) addresses the needs of the unemployed in the rural India but won’t boost demand immediately.

However, even the hardened critics would agree that the government needs to be complimented for finally biting the bullet and pledging reforms in India’s agri-marketing system and opening up the PSU-dominated strategic sectors for private players.

Many agricultural economists, who were very critical of the Modi government, have welcome the announcements relating to the Essential Commodities Act of 1955, allowing farmers to sell their produce to anyone outside the APMC mandi yard, along with a barrier-free interstate trade; and creating a legal framework for contract farming where the buyer can assure a price to the farmer at the time of sowing the crop.

In response to her critics, Nirmala Sitharaman wants us to focus on where the money is going from the government. Her argument is if additional money doesn’t reach small units, they cannot pay wages nor buy raw material; or run their units to even 10-15% capacity. So, she says, one has to wait for the multiplier effect.

Similarly, whatever money that will be given through NABARD will go to small and marginal farmers for the pre-kharif (monsoon crop) preparation.

We are also reminded that, thanks to Modi’s perseverance over the past six years, initiatives such as the Jan Dhan Yojna have meant that direct benefit transfer to the needy is the new normal.

But the counter argument is that, without either income support or wage protection for businesses, layoffs across India are unavoidable. Without additional budgetary support, there is no real stimulus.

If the US and UK can includes wage support for self-employed and salaried employees for three months, could not our government hand out cash like other countries?

The answer is that Modi could not have risked a situation when we have seen the ill-effects of the previous regime’s spending in the name of welfarism, resultant corruption and cronyism between 2004 and 2014.

The concept of a guaranteed universal basic income may sound very tempting or politically correct today. But the efficacy of UBI to redress poverty in India has to be gone in detail in terms of huge costs and benefits.

Also, with a steep fall in tax collection due to the effects of the slowdown and pandemic, where can the government look for extra revenue? Can we be taxed more?

Modi does not want to go down that road — notwithstanding huge criticism directed at him for not opting for cash flow to the people. The PM would rather bid time for the lockdown to end, trade and businesses to pick up and move on spurred by spending plans for mega growth. Ultimately, it is not profligacy but what individuals, trade, and businesses make of the crisis and new opportunities — with the government providing the helping hand — that determines the outcome. The writer is a former Senior Associate Editor of Hindustan Times and Political Editor of Deccan Herald, New Delhi