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[Burning Issues] Atmanirbhar Abhiyan Package

 

Today we decode parts of the “20 lakh crore” Economic Package.

Fair warning though. It’s a long  journey to walk!

  • The COVID-19 pandemic and the prolonged national lockdown have brought the Indian economy to a standstill.
  • The various announcements made by the Finance Minister concluded the relief measures undertaken in five tranches by the government as part of the economic package announced by PM Modi for ‘Atmanirbhar Bharat’.

Impacts of COVID-19 on Economy: Broad Picture

Given an uncertain future for the rest of the year, it can be clearly seen that the Indian economy is contracting.

  • That is, it will produce less in 2020-21 than it did in 2019-20. This means the Gross Value Added across sectors — agriculture, industry and services — will fall.
  • As incomes fall, three things will happen.
  • One, individuals will cut down their expenditure. In particular, all discretionary expenditure — be it an additional pack of cigarettes or a new car or a house — will come down sharply.
  • Two, seeing overall demand fall, businesses, which were already not investing, will likely postpone their investments further.
  • Three, the government revenues will take a massive hit. This means that if the government wants to maintain its level of fiscal deficit (the gap between what it earns as revenues and what it spends), it will have to cut its overall expenditure this year.
  • These three types of “expenditures” — by individuals, businesses and government — essentially make up the GDP of India.
  • There is a fourth component called net exports (that is, the net of exports and imports), but with the global demand plummeting as well, this too is unlikely to help matters.

Atmanirbhar Bharat: With a special package

  • PM has announced a special economic package and gave a clarion call for Self-reliant India.
  • This package, taken together with earlier announcements by the government during COVID crisis and decisions taken by RBI, is to the tune of Rs 20 lakh crore, which is equivalent to almost 10% of India’s GDP.
  • The package will also focus on land, labour, liquidity and laws. It will cater to various sections including cottage industry, MSMEs, labourers, middle class, and industries, among others.

Complete details of the package

First Tranche: Rs 5,94,550 crore

  • The first set of relief measures announced by Nirmala Sitharaman focused on enabling the Indian economy’s backbone – MSMEs that employ around 11 crore people and have a GDP share of approximately 29 per cent.
  • Out of the 16 announcements made by the minister, six were dedicated to the MSME segment to infuse liquidity.
  • This included Rs 3 lakh crore collateral-free loans and Rs 50,000 crore equity infusions for MSMEs through Fund of Funds.
  • Liquidity relief measures worth Rs 30,000 crore were also announced for NBFCs, HFCs etc. and Rs 90,000 crore for power distribution companies.
  • The minister also advised states and regulatory authorities for extending the registration and completion date of real estate projects under RERA to de-stress developers and ensure completion of projects for home buyers to get their booked houses on time.

Second tranche – Rs 3,10,000 crore

  • FM’s second tranche of measures catered to migrant workers and street vendors.
  • The minister introduced ‘one nation one ration card’ to allow migrant workers to buy ration from any depot in the country.
  • A special credit facility of Rs 5,000 crore was announced to support around 50 lakh street vendors who will have access to an initial Rs 10,000 working capital.
  • The minister also said that close to Rs 2 lakh crore will be given to farmers through Kisan credit cards while 2.5 crore farmers, including fishermen and animal husbandry farmers, would be able to get institutional credit at a concessional rate.
  • The government allowed states to fund the food and shelter facilities to migrant workers from the disaster response fund that would cost Rs 11,000 crore to the centre.

Third tranche – Rs 1, 50,000 crore

  • The third tranche of the measures worth Rs 1.5 lakh crore focused on the agriculture and allied sectors including dairy, animal husbandry and fisheries as the government announced steps to strengthen the overall farm sector.
  • Sitharaman announced Rs 1 lakh crore agriculture infrastructure funds for farm-gate infrastructure including using it for setting up cold chains and post-harvest management infrastructure.
  • Other key announcements made by the minister included Rs 20,000 to be provided to fishermen through PM Matsya Sampada Yojana, and Rs 10,000 crore to formalize micro food enterprises.
  • Rs 4,000 crore for herbal cultivation, a Rs 15,000 crore Animal Husbandry Infrastructure Development Fund, Rs 500 crore for bee-keeping related infrastructure development were other packages announced by the minister.

Fourth and fifth tranches – Rs 48,100 crore

  • The fourth instalment comprised of reforms for sectors including coal, minerals, defence production, air space management, airports, MRO, distribution companies in UTs, space sector, and atomic energy.
  • She announced easing utilization of the Indian air space to reduce air travel cost.
  • The minister also announced the commercial mining in the coal sector and privatizing discoms in metros to streamline their functions for better accountability.

  • The minister allocated an additional Rs 40,000 crore for the MGNREGA for job creation in India’s hinterland. The government had earlier allocated Rs 61,000 crore in the budget for this financial year.
  • She also announced the formulation of a new Public Sector Enterprises Policy that would allow for consolidation of the PSU firms in strategic sectors.
  • Each sector would have up to four such firms while state-owned enterprises will be privatized.

Is this a new package?

  • The PM did not give the details, but he specified that this calculation of Rs 20 lakh crore includes what the government has already announced and the steps taken by the RBI.
  • This means the total amount of additional money — that is over and above what the government would have spent even in the absence of a COVID crisis — will not be Rs 20 lakh crore. It would be substantially less.
  • PM has included the actions of RBI, India’s central bank, as part of the government’s “fiscal” package, even though only the government controls the fiscal policy and not the RBI (which controls the ‘monetary’ policy).
  • A rough estimate suggests that the RBI’s decisions have provided additional liquidity of Rs 5-6 lakh crore since the start of the Covid-19 crisis.

What is the approach adopted?

  • The measures taken up are largely in line of –

1) Giving a strong supply-side push by boosting the availability of capital on easy terms

2) Keeping income and wage support schemes to the minimum

3) Empowering constituencies ranging from farmers and workers to businesses

  • Above all, the government seems to be keen on keeping the damage to the fiscal as low as possible.
  • The fiscal impact of the Rs. 20-lakh crore packages is estimated by economists at between 2-3% of GDP.
  • This includes withdrawals from provisions already made in the Budget for this fiscal.

Idea behind the Atmanirbhar

  • The pillar on which the package rests is liquidity support so that businesses can be revived. This, in turn, is expected to set the economic cycle back in motion.
  • The option of a demand-side stimulus through a resort to deficit financing seems to be reserved for a future date.
  • This could be in case if the infection does not subside or a second wave begins prompting another lockdown.

Significance of self-efficiency and self-reliance

  • Global supply chains have been disrupted and all nations have become preoccupied with meeting their own challenges.
  • The importance of local manufacturing, local market and local supply chains was realized during the pandemic time. All our demands during the crisis were met ‘locally’.
  • Now, it was a ripe time to be vocal about the local products and help these local products become global.
  • For instance, the supply chain and global manufacturing controlled by Chinese economy got disrupted due to COVID. Thus there is a need to become self-reliant for essential goods and service like N95 masks, ventilators etc.
  • Restrictions on travel and mobility have meant tight controls over the flow of goods, services and labour across international, state and district borders.
  • The international economic order is changing; the possibility of greater economic cooperation is diminishing. So the emphasis should be on the need to leverage India’s inner potential.
  • The Self-Reliance neither signifies any exclusionary or isolationist strategies but involves the creation of a helping hand to the whole world.
  • This is neither an economic nationalism or a rejection of globalization, but a call for a new form of globalization — from profit-driven to people-centric which takes into account the needs of labours, vulnerable and have nots.

Positives of the package

In the numbers provided, the government has tried to project a ‘maximum bang for minimum buck’ approach.

Most support measures have translated into forms of regulatory relief, broader liquidity support or are reflected in its contingent liabilities, rather than in the form of explicit budgetary support.

It seems the Union government has very craftily used the COVID-19 pandemic crisis to plough through long pending, deep-rooted structural reforms. That should be welcomed.

Other welcome moves

  • The government has done well in increasing the budget for MGNREGA by two-thirds, adding another Rs. 40,000 crore.
  • With migrants now returning to their villages, MGNREGA can be leveraged to keep them occupied with meaningful work.
  • The demand of States for higher borrowings limit has also been granted but with clear reform milestones that they have to meet.
  • The government has also used the opportunity to unleash some much-needed reforms in agriculture marketing.
  • The measures also include –

1) opening up more sectors for private participation

2) enhancing foreign direct investment in defence

3) corporatizing the monolith Ordnance Factory Board, and so on

On contract farming

  • The Centre is considering introducing a law on contract farming under the Contract Act of 1872 to enable farmers to directly engage with processors, aggregators, large retailers and exporters in a fair and transparent manner.
  • It would allow private players to invest in inputs and technology in the agricultural sector.

Criticisms of the package

  • Yet, many have openly questioned the ability of this economic package to either provide adequate immediate relief to the most distressed sections of the economy or indeed stem the rapid decline in India’s GDP growth.
  • There are multiple fronts where this package is seen as inadequate. Let us discuss that-

1) Old demand met with conditions

  • The package contains several generic announcements which should ideally, has been a part of a normal economic agenda.
  • The industry has been demanding a package to the tune of 7% to 8% of India’s GDP of over $2.8 trillion since a long time.
  • There was nothing unusual given that similar packages have been announced by other countries to mitigate the damage done to their economies.
  • So, a package of the size of almost 10% of the GDP was offered like a masterstroke but without coming clear on the source of funding and oversight provision.

2) Bluff over MSMEs

  • Since MSMEs have been the hardest hit, being the main employers of industrial workers, their plight is grim.
  • It is small businesses that give traction to entrepreneurial activities in the unorganised sector where migrants from rural India mostly work.
  • The redefinition of MSMEs has been long-pending and cannot be called a reform.
  • There is nothing for the States to look forward to that can serve the immediate purpose.

3) No stakeholders consulted

  • Ideally, after the first round of an insufficient package, the government should have begun consultations with parliamentarians, states and industry representatives to prepare a well-thought-out relief package.
  • States which have been at the forefront of the war against COVID-19 have not been given the required funds to help them cope with the public health emergency.
  • They have however shouldered the high influx of returning migrant labourers from industrial locations.

4) Job losses unaddressed

  • India’s great middle class, which is also suffering, has found no solace either; nor is it likely that they will get anything substantial from this package.
  • A large number of workers in the organised sector are facing heavy pay cuts, job losses, a sharp fall in income, and uncertainty.
  • The expansion of MGNREGA, has a negative aspect, as it could impact labour availability, as rural migrants may not rush back for jobs (construction, transport most impacted).

5) Farmers’ plight ignored

  • The package nowhere mentions resuming normal procurement operations.
  • Farmers are finding it difficult to get the minimum support price (MSP) for their produce; a majority of them are in debt and face many obstacles.
  • Many APMCs are shut with no signs to begin normal operations. Middlemen and Adhatiyas are plunging in to purchase the produces far below the MSP.

6) Migrant workers ignored

  • The first national lockdown was announced in the most dramatic manner late in the evening and without adequate notice.
  • This created panic among migrants and painful displacement began which could have been avoided by offering the industry a timely financial package on the eleventh hour.
  • Economic desperation might leave poor workers with no choice but to return to work. But many of them are truly worried about getting infected.
  • Though Shramik Express trains were flagged off from certain destinations to take back migrant workers to their home States, but there was another shock — the charges levied by the Indian Railways.
  • Now India faces the loss of lives and livelihoods against the backdrop of the ruling dispensation’s apathy towards the poor and the disadvantaged.

7) Healthcare needs more attention

  • Our healthcare delivery system in most States is extremely fragile.
  • One wonders, for instance, whether Bihar can handle the consequences if the virus begins to spread with the return of millions of migrant workers back to the State.
  • Many other States also face a similar plight given the poor state of primary healthcare facilities.
  • The pandemic has exposed a hard truth: most private healthcare providers seem to be incapable of and unwilling to help even during a national crisis.

8) Undue pressure on Banks

  • Indian MSMEs have little access to risk capital, and hence raise it from banks, calling it loans. RBI has lent billions to banks to refinance those loans.
  • It will never get its money back. The FM has, for the first time, showing some awareness of the problem.
  • But the solution is weird. GoI will facilitate— whatever that means — provision of Rs 20,000 crore as subordinate debt. That is debt that does not have to be paid until all other loans have been repaid.
  • In other words, banks will be asked to give loans with an informal guarantee that they are gifts unless the bankrupt firm starts making huge profits someday.

9) Broader reforms lack the spark

  • India’s self-reliance package to match global stimulus numbers is perhaps the driver for the claim of a large package (USD 280bn, 10% of GDP).
  • India does not have fiscal buffers hence a large fiscal stimulus would have been a bold bet – as that could have impacted ratings and currency, if not executed properly.
  • Not much was discussed on land, labour reforms, tax rationalization or on any coherent plan to invite foreign manufacturing.
  • The government’s defence indigenization plan is not new and has been poorly executed in the past and that is also the case with commercial mining for coal.

10) Ignoring demand stimulus

  • The problem with this approach is that there is now a desperate need for demand stimulus; the government has focussed on supply-side push.
  • A strategy to drive consumption may have worked better under prevailing conditions.
  • The options could have been suspending GST for a couple of months or at least cutting rates temporarily, combined with a liquidity boost.

What needs to be done at this immediate hour?

1) Food and cash transfers first

  • The immediate need is to provide free food and cash transfers to those rendered incomeless.
  • Putting money in the hands of the poor is the best stimulus to economic revival, as it creates effective demand and in local markets.
  • Hence, an immediate programme of food and cash transfers must command the highest priority.

2) Revamp MGNREGA work

  • Millions of migrant workers have endured immense hardships to trudge back home, and are unlikely to return to towns in the foreseeable future.
  • Employment has to be provided to them where they are, for which the MGNREGS must be expanded greatly and revamped with wage arrears paid immediately.
  • And permissible work must include not just agricultural and construction work, but work in rural enterprises and in care activities too.
  • The revamped MGNREGS could cover wage bills of rural enterprises started by panchayats, along with those of existing rural enterprises, until they can stand on their own feet.

3) The urban focus

  • In urban areas, it was absolutely essential to revive the MSMEs.
  • Simultaneously, the vast numbers of workers who have stayed on in towns have to be provided with employment and income after our proposed cash transfers run out.
  • The best way to overcome both problems would be to introduce an Urban Employment Guarantee Programme, to serve diverse groups of the urban unemployed, including the educated unemployed.
  • Urban local bodies must take charge of this programme and would need to be revamped for this purpose.

4) The ‘care’ economy

  • The pandemic has underscored the extreme importance of a public health-care system, and the folly of privatization of essential services.
  • The post-pandemic period must see significant increases in public expenditure on education and health, especially primary and secondary health including for the urban and rural poor.
  • The “care economy” provides immense scope for increasing employment. Vacancies in public employment, especially in such activities, must be immediately filled.
  • Anganwadi and Accredited Social Health Activists/workers who provide essential services to the population, including during this pandemic, are paid a pittance and treated with extreme unfairness.

5) Increasing revenue

  • All the tasks mentioned in the package could be financed by printing money. But in the medium term, public revenues must be increased.
  • This is not because there is a shortage of real resources which, therefore, has to take from other existing uses through taxation.
  • Rather, since much-unutilized capacity exists in the economy, the shortage is not of real resources; the government has to just get command over them.
  • A combination of wealth and inheritance taxation and getting multinational companies to pay the same effective rate as local companies through a system of unitary taxation will garner substantial public revenue.

6) Looping in foreign capital

  • It would be argued that this might cause large financial outflows, which the country can ill-afford.
  • Contrarily, even foreign capital is more likely to be attracted to a growing economy than one in sharp decline because of a lack of stimulus.
  • Also, a fresh issue of special drawing rights by the IMF (which India has surprisingly opposed along with the United States) would provide additional external resources.

Conclusion

  • The coronavirus disease pandemic has offered India a valuable lesson on the importance of self-reliance and self-sufficiency that we must aspire to attain the twin goals.
  • Self-reliance will prepare the country for tough competition in the global supply chain, and it is important that the country wins this competition.
  • It will not only increase efficiency in various sectors but also ensure quality.
  • In sum, the package has several notable features not all of which are COVID-19 relief. But, the government has clearly refused to borrow and spend more on boosting demand.
  • If the strategy of boosting supply works, it is fine. However, if it does not work on expected lines, the government will be faced with a bigger problem down the line.

Way Forward

  • Several bold reforms are needed to make the country self-reliant so that the impact of crisis such as COVID can be negated in future.
  • These reforms include supply chain reforms for agriculture, rational tax system, simple and clear laws, capable human resource and a strong financial system.
  • These reforms will promote business, attract investment, and further strengthen Make in India.
  • Local Governments should be playing a key role in supporting the government’s outreach in vast belts of rural India to spread awareness about the coronavirus disease.
  • Local governments can undertake door-to-door campaigns; stitched masks; made hand sanitisers for local populations; and provided support to the local administrative and security machinery in both providing basic services to residents and enforcing the lockdown.

Try this:

Q. The palpable unsustainability of the earlier globalisation surfaced after the COVID outbreak means that growth in India in the coming days will have to be sustained by the home market. Examine.

 




References

https://www.hindustantimes.com/india-news/stimulus-package-a-lost-opportunity-bernstein/story-dedaae4OQjenIjk9oLjm7H.html

https://indianexpress.com/article/explained/explainspeaking-why-the-atmanirbhar-bharat-abhiyan-economic-package-is-being-criticised-6414905/

https://www.thehindu.com/opinion/op-ed/where-is-health-in-the-stimulus-package/article31609611.ece

https://www.thehindu.com/news/national/coronavirus-package-will-migrant-workers-benefit-from-the-centres-measures/article31603590.ece

https://www.thehindu.com/opinion/editorial/a-matter-of-relief-on-economic-stimulus-package/article31617547.ece

https://www.financialexpress.com/economy/breakup-of-the-rs-20-lakh-crore-economic-stimulus-package-by-fm-sitharaman/1961843/

https://thewire.in/political-economy/modis-stimulus-package-is-a-gigantic-confidence-trick-played-on-the-people-of-india

https://economictimes.indiatimes.com/news/economy/policy/why-india-needs-to-go-vocal-for-local-stores/articleshow/75812730.cms?from=mdr

https://www.thehindu.com/opinion/editorial/local-motif-the-hindu-editorial-on-modis-call-for-self-reliance/article31577225.ece

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