It is way too optimistic to believe that the latest infusion of funds into the economy will help India emerge from the pandemic
While it was always felt that India should have gone big with its first stimulus package, some more educated economists believed that the Government was wise to not play its hand too soon. Is it the correct time now for the Government to infuse funds into the economy? It is apparent that officials in the Finance Ministry believe just that with the latest round of prod measures announced by Nirmala Sitharaman. Yet questions remain about their efficacy because of their selective, sectoral appeal. Definitely fertiliser, cement and steel companies as well as those into infrastructure building will be very happy. Also some kind of job creation is expected. Under this scheme, every establishment that is registered with the Employees Provident Fund Organisation (EPFO) will be incentivised to hire people who were not registered with EPFO earlier as well as those who lost their jobs between March 1, 2020, to September 30, 2020. The Central Government will give a subsidy for new employees for establishments with up to 1,000 employees. Yet, the average income tax payer, the white collar worker, who has been hit the hardest by the pandemic, might still feel hard done by with the few direct relief measures announced. But as the Bihar elections made it very clear that Prime Minister Narendra Modi knows his audience well, so he is ensuring that those in lower income groups get much of the benefits. The Opposition will almost certainly protest but it has not brought any positive ideas to the table either, thus cementing its political irrelevance. One will have to wait and see if this is the spark that the economy needs to recover from months of stasis. Certainly, increased activity in infrastructure and the performance-linked incentives for manufacturing might push up growth curves and bring back jobs across the board. While incentives to clear the housing inventory and step up infrastructure are good, there also needs to be an acceptance by many that the good times of the past will not come back anytime soon. Sales will stay depressed for a while, as will salaries and while there might be some festive cheer about a vaccine, it may be several months, maybe even a couple of years before a reasonable number of Indians receive a shot. The stimulus believes in creating a demand but the consumer will be cautious for some time. However, it is the informal sector that has been the hardest hit and where direct cash transfers are still a patchy proposition. Modi may have spun an electoral magic but without a booming economy, employment and newer opportunities, particularly among the subaltern castes, he cannot sustain his popularity either.
As announced, the stimulus package was said to be of Rs 29,87,641 crore (15 per cent of GDP till date) with the Government’s contribution being nine per cent of GDP and the Reserve Bank of India’s the remaining six per cent. But even if we calculate the account of the extra spend this year, it adds up to only Rs 1,18,200 crore which is not even half of what Sitharaman promised. Also this only accounts for 0.6 per cent of GDP. The first package on March 27, the highlight of which was the Pradhan Mantri Garib Kalyan Yojana, was Rs 1.08 lakh crore; the second announcement, which was made over a period of five days in May, added up another Rs 1.08 lakh crore to the Centre’s fiscal cost and the third package in October had a capital expenditure component of just Rs 37,000 crore. Even after adding all the relief measures for the Coronavirus pandemic made by the Government, it would increase the Centre’s actual fiscal outgo by under two per cent of GDP in 2020-21. Additionally, the expenditure in the form of production-linked incentives (PLIs) to 10 new sectors amounting to Rs 1,45,980 crore will most likely kick in only in the next financial year. However, we all know that things could be a lot worse and in this festive season, we should remember that last Diwali nobody thought we would be here today. We can only hope that Diwali 2021 is the one where the economy and society are both looking up.
