Rs 20 lakh cr stimulus package: Devil is in the details

Some initiatives seem unlikely to spur growth, while others that are promising, demand additional details for effective implementation.

ith rapidly increasing Covid cases ravaging parts of the country and most businesses still far from resuming normal operations despite four lockdowns, expectations were high for a sizeable intervention from the Union Government. Unsurprisingly, there was palpable excitement on 12 May, when Prime Minister Narendra Modi indicated the contours of a Rs 20 trillion relief cum revival plan. Equivalent to 10% of India’s GDP, it covered most of the impacted sectors, but left it to the Finance Minister, Nirmala Sitharaman to spell out the details. The overall response, once the five tranches had been spelt out, however, caused widespread disappointment, with some even terming the PM’S headline figures and his minister’s subsequent “fillin-the-blanks”,

as sleight of hand.

For an objective assessment of the aid-package, it’s useful to recall the oft-stated constraint of fiscal space, lack of effective delivery mechanisms to reach the affected, and the need to hold back a certain amount of firepower, given the uncertainty in intensity and length of the pandemic. Also worth noting is the utmost need to prioritise social infrastructure, especially public health and basic education.

The prevalent crisis has provided governments at the Centre and in states the political leverage to usher in “strong measures”—moves conducive to hastening economic growth, albeit after a gap. Asking people and businesses to tighten their belts as the authorities deal with the crisis, can work when there is confidence that there is light at the end of the tunnel.

Global investors and their facilitators too will take a benign view when convinced that higher spends through deficit financing would succeed in putting the economy on a higher growth trajectory.

The “r and r deal” consists of modest direct and contingent outgo from government coffers of about 1.5% of GDP, and relies on the RBI and banks for remaining 70% of the promised Rs 20 trillion. The primary objective of easing liquidity and extending working capital loans by banks, forms its hallmark. While a few “reform measures” were mentioned, reservations have been expressed as these initiatives had long been in the works or already mentioned in prior Budgets.

A macro comment made about the relief measures aimed at providing succour to almost half a billion citizens, focuses on the quantum of assistance. It is argued more free or subsidised grains and lentils could have been provided: for instance, the PM Kisan money transfers doubled to Rs 4,000 per quarter, and amount of money going into the 200 million women Jan Dhan bank-accounts raised from

Rs 500 to Rs 750 per month.

As per a recent survey, 60% of farmers in 12 states reported facing losses due to delayed harvesting, low prices and difficulty in accessing markets, labour and machines due to government curbs. The lockdowns have undoubtedly hurt preparations for the upcoming kharif sowing. In addition to more subsidized grains, poor households need money to buy staples like edible oil, vegetables, pulses, milk and eggs. Add to this rent payments and it’s easy to see how the current situation poses challenges to their ability to survive.

Providing an additional Rs 400 billion for MGNREGS, despite the earlier reservations about the job-scheme, recognises its pivotal role in reaching the rural-needy population. 3.5 million additional people—the highest since its inception in 2008— have applied for new job cards between 1 April and 20 May of this year, compared to 0.18 million in the same duration last year and 1.5 million during the entire previous year. To ensure countryside unemployment doesn’t balloon with hordes of returning migrant labour, enrolment for work should be made open ended—any able adult willing to do manual work be registered with no questions asked about the household he belongs to or the number of days his other family members have worked under the scheme during the year.

Unfortunately, reality today is that of the 43.3 million jobseekers, only half have been provided work as per official data. Clearly, it is imperative now to make the scheme the lynchpin of all rural public works. MGNREGS workers could also be engaged by agencies and contractors under the relatively successful Gramin Sadak Yojana (rural road connectivity scheme), Awas Yojana (housing scheme) and the new National Piped Water Mission. Failing to provide work on such public schemes, the district collectors can be empowered to use labour for agriculture operations or any other individual or group activity.

To meet the anticipated growing demand for work in urban areas, a National Urban Employment Guarantee Scheme (NUEGS) on the lines of MGNREGS is warranted. Besides the already identified NUEGS projects, registered workers should be eligible for employment in works under all local, state and Union Government schemes. In a newly evolved PPP model, private infrastructure and real estate developers could be obligated to provide unskilled work to them with minimum wages paid by NUEGS authorities, and remaining, if any, by private developers. Over time, as with MGNREGS, many crinkles and creases will get ironed out and more nuanced policies and procedures will evolve.

Another major reform laid out by the Union Government focuses on opening up of the mining industry, particularly coal. Undoubtedly, mining can be labour-intensive and does provide materials for several upstream industries. However, the lead time before a mineral asset becomes commercially operational, is several years. Add to that reduced global energy demand and the sharply declining utilizationfactor of coal fired electricity stations—all of these together cause apprehensions that the initiative may not move the needle much.

Also announced was a move to privatise over 300 public enterprises owned by the Union Government and its pledge to remain only in strategic fields with not more than two to three enterprises in each.

While this move is understandable from a resource generation standpoint and to improve operational efficiency, there is not much to be enthused since the government seems to have underestimated both the opposition of labour bodies and its own poor record in achieving prior years’ modest disinvestment targets.

A more hopeful sector is agriculture. To improve its terms of trade vis-à-vis manufacturing and enhance farm-incomes, a set of marketing reforms have been conceived; operational details though of a national market for agricultural products have yet to be evolved. This includes amendments to Essential Commodities Act, 1965 and framing a Central law concerning the entrenched agriculture marketing committees.

Quicker progress, however, is feasible in facilitating contract farming for vegetables and fruits, and general purpose farm gate and e-marketing platforms, through the creation of countrywide agri-infrastructure of decentralized networks of storage and supporting logistics.

The stimulus package has so far been a bit of a mixed bag. Some initiatives seem unlikely to spur growth, while others that are promising, demand additional details for effective implementation. The need for prompt action is dire. The next few months are critical and there will be a sharp spotlight on the government’s execution of these efforts.

Dr Ajay Dua, a developmental economist, is a former Secretary to Government of India.