Stimulus package may fail to mitigate distress
In a joint effort to mitigate financial stress expected to be caused by the deadly Covid-19, the Central government and the RBI have announced a stimulus package worth `5,40,000 crores. In addition to this, the RBI has declared a three-month moratorium on term loan repayment and the Insurance Regulatory and Development Authority of India has announced a grace period of one more month (in addition to the existing 30-day exemption). The monetary value of both the moves in terms of deferring people’s expenditure is huge and may run into several lakh crores. While these two steps could protect a common man from the cascading effects of a default, they miserably fall short of expectations if the money earning avenues dry up for a family.
The announcements appear to have been designed for a scenario where a family has money — either through truncated salary or personal savings — to take care of the food bill but not for paying loan instalments. But officials at the finance ministry seem to have forgotten that many people in the uppermiddle class too have a hand-to-mouth existence. If such people don’t get even a truncated salary, they won’t be able to bring food to their table. While the RBI has eased liquidity for banks and is encouraging them to lend money to companies for working capital to pay salaries, the actual transmission of the intent on ground is doubtful. The companies may borrow money and not pay salaries to employees, placing them in a deeper mess.
The situation of unorganised labour or the employees of micro and small scale industries, devoid of any social security net, would be pathetic. The measures announced by finance minister Nirmala Sitharaman on Thursday are inadequate and would not help anybody in case of a prolonged lockdown. The Narendra Modi government has announced free supply of cereals, pulses and LPG cylinders to ensure the food security of poor. Given the loopholes in the public distribution system, one cannot guarantee its smooth implementation. Of the `1.7 lakh crore stimulus package, a significant amount — according to an estimate, `60,000 crore — is spent for transferring `2,000 in advance for each farmer under the existing PM Kisan Yojna scheme. Minus this, the size of the bailout package aimed at supporting the poor shrinks to `1.1 lakh crore.
The government has proposed to transfer 24 per cent of wages to PF accounts of people drawing a monthly salary of below `15,000. It proposed to transfer between `500 and `1,000 to women, senior citizens and differently-abled people. Success, however, depends on the efficient functioning of various stakeholders. An ideal and simple way, however, could have been the transfer of cash — may be `10,000 per month — to the bank accounts of 27.5 crore LPG users (which cover 96 per cent of population), entailing a total expenditure of `2.75 lakh crores. On the supply side, an efficient door delivery system for essential commodities would prevent jacking up of prices.