The devastation caused by pandemic ensued lockdown may take ten long years to recover and the world economy may continue to be in severe crisis till 2030, forecasts the UN World Economic Prospects and Situation 2020 (WESP) released on May 13 estimates. Further, in 2020, global economy would shrink by 3.2 per cent, in two years would lose $8.5 trillion and online activities will cost jobs, it warns. Amid such crisis, India’s Rs 20 lakh crore economic package, much through credit boost is far short of the needs.
Finance Minister Nirmala Sitharaman’s repackaging of the budget is a tough attempt to chalk out a path for presenting a bold government face. Perhaps a government, hamstrung with finances, Rs 22 lakh crore-odd production losses and revenue fall, is not in a comfortable situation to combat the impending situation. It can be criticised for not doling out enough cash but the reality is the Indian economy is in deep crisis with 1.2 to zero per cent growth in 2020.
The lockdown has disturbed production schedule, caused job losses, shrunk demand and nagging uncertainty the world over has put the decision maker in a tight spot. The government may have wanted cash support, vital in this precarious situation, but could not muster it.
The GDP growth in developed economies, WESP estimates, will plunge to minus 5 per cent in 2020. Global supply chains are to remain disrupted and world trade is forecast to contract by nearly 15 per cent this year. “The lesson we learnt from 2008 financial meltdown is that fiscal and monetary stimulus measures do not boost productive investments”, says WESP.
It is a critical situation indeed. So in the announcements of Sitharaman, government’s cash outgo apparently is limited to government funding of Provident Fund accounts of workers up to Rs 15000 a month salary and Rs 11,000 crore spending for migrant labourers – including free food grains of Rs 3500 crore. This is all lending from the banks, NABARD or financial institutions as it happened in 2019, when total loans disbursed by banks increased from Rs 87.46 lakh crore to Rs 97.10 lakh crore.
The liquidity support to the MSMEs – micro, small and medium enterprises, employing about 12 crore people and the farm sector are either part of the Rs 30.42 lakh crore budget announcement or have been modified a bit. For example, the NABARD was earlier to spend about Rs 90,000 crore, but now would spend Rs 30,000 crore more for farm benefits — loans.
The “Shishu” Mudra loans up to Rs 50,000 are to become a liability for banks with further Rs 1500 crore interest subvention of 2 per cent. The subventions alone are to help the banks as government would fund it. Most Mudra loans have turned into NPAs of Rs 17250.73 crore as on March 2019. An addition is the loan for vendors, Rs 10,000 each to set up their business. Instead it could have given doles in two tranches to help the needy as well as earn goodwill. The outgo would have remained Rs 5,000 crore as announced. The vendors could have become more self-reliant, atmanirbhar as Prime Minister Narendra Modi wants.
Thus, it’s no wonder that many, like the village artisans, small retailers, poultry, tourism and restaurant sector, do not find support. Despite concern over migrant workers, the much-needed support system has yet to emerge.
The WESP forewarns developing country economies are to shrink severely and that overall 130 million people globally would slip to extreme poverty by 2030. This clearly indicates that severity of the crisis would continue for 10 years and the low-skilled, low-wagers would obviously bear the brunt.
In such a scenario, the Finance Minister’s promise to continue with free food programme and universal ration card should provide some succour. She says that for eight crore-odd migrant workers the government created 14.62 crore person-day of work till May 13, free meals and would now ensure rented housing for them in cities under the PM Awas Yojana (PMAY). In reality, the migrant workers have got precious little.
It is said that MNREGS has spent Rs 10,000 crore in 43 days to employ 2.33 crore in 1.87 lakh gram panchayats. This means the scheme would need over Rs 85,000 crore against the present allocation of Rs 61,500 crore. Besides, the government should consider extending the employment for 200 days from the present 100 days, which means the allocation would have to double to Rs 170,000 crore. A difficult task alright but is worth for saving the distressed millions and creating demand.
In continuation, Sitharaman says that Rs 6,000 crore Compensatory Afforestation Fund Management and Planning Authority funds (CAMPA) would generate jobs for both tribals/ adivasis in forest areas, which will ensure cash in their hands.
However, it appears there is dilemma on cash. On the one hand, the government recognises its needs and is keen on boosting cash for farmers, rural and other workers and on the other is trying to boost digitisation in an extremely poor society. Since 2016, many marginalised businessmen and the poor have been suffering, as cash is simply not easy to have, whereas the cash flow has to match the demand for fast-paced activities in the country. This would have also helped the overworked banks, which invariably harass the depositors whenever they go for their cash withdrawals. Unfortunately, the depositor is treated like a pariah.
Importantly, the government needs to make a note of WESP’s grim warning that rapid surge in online activities will eliminate existing jobs and take corrective steps. “The net wage and employment effects could be negative, further aggravating income inequality”, cannot be ignored. Besides, there is a broad hint of the growing debt distress on developing countries, including India, further constraining their ability to implement stimulus measures.
All of the above perhaps explains the government’s restricted efforts in declaring the fiscal package. In March, the GST earnings are Rs 30,000 crore but would be less than Rs 10,000 crore in April and therefore it should seriously contemplate scrapping of the Rs 90,000-crore aid announced for power distribution companies (discoms).
Additionally, it’s no wonder that income-tax refunds, a natural claim of the assessee, periodic re-classification of MSME categories, 25 per cent cut in TDS on business deals have been projected in a big way. The government knows that savings of the people are becoming critical, its revenue earnings are suffering, economy is thawing and managing affairs is becoming problematic in an unforeseen situation of COVID-19 lockdown. Even the UK is finding unemployment doles too large and unaffordable. Expecting India to match it is unrealistic and thus it is pragmatic to open up early, corona or not.
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