NEW DELHI — The Narendra Modi government’s much-touted Aatma Nirbhar, or self-reliance, economic stimulus appears to be a rehashing of previously announced schemes, with very little additional spending, that is unlikely to prop up the faltering national economy, a close read of the package and interviews with economists reveal.
The Modi government announced a Rs 20 lakh crore stimulus package over five days in May this year to ameliorate the economic devastation caused by India’s punitive and unplanned coronavirus lockdown. At 10% of India’s GDP, the Aatma Nirbhar economic package was billed as one of the largest in the world. Yet, the opposition Congress Party says the stimulus in terms of actual additional government spending could be as little as between 1.6% to 0.91% of the GDP.
Global Securities research firm Sanford Bernstein, which put the fiscal spending at 0.9% of the GDP, described the economic stimulus as “aimless,” “with several generic announcements which should ideally have been a part of a normal economic agenda.”
R. Ramakumar, an economics professor at the Tata Institute of Social Sciences in Mumbai, told Huffpost India that his calculations suggested actual additional government spending would be 1.5 to 2 lakh crores, or 0.87% of the GDP.
“Given that the whole world is announcing government packages, the government of India wants to make it look like it has announced a huge package,” Ramakumar said. “The reality is that this package is extraordinarily insignificant in magnitude, and does not take into account the acuteness of the crisis that we are in the moment. Its impact on the economy is going to be insignificant.”
Ramakumar said this was a time when the government should be transferring money to vulnerable workers, farmers, and the urban and landless poor; but “the government is holding on to its purse and it is not opening it up.”
Ramakumar said this could be because the government was reluctant to run a higher fiscal deficit.
“There is an ideological opposition in the economic thinking within the government that higher fiscal deficit is bad for the economy primarily because it will scare away foreign investors who come to India,” he said. Other countries however, “have temporarily kept aside such concerns and gone into increasingly fiscal deficits.”
Here are seven key reasons why the Modi government’s economic relief measures since March have left many unimpressed.
The reality is that this package is extraordinarily insignificant in magnitude…
Pradhan Mantri Matsya Sampada Yojna
One part of Rs 20 lakh crore Aatma Nirbhar package, Finance Minister Nirmala Sitharaman announced Rs 20,000 crores for the Pradhan Mantri Matsya Sampada Yojna to“integrate, sustainable, inclusive development of marine and inland fisheries to plug critical gaps in fisheries value chain,” and to provide employment to over 55 lakh persons and double exports to Rs. 1 lakh crore.
However, this scheme was first announced in July 2019 and approved in January 2020, well before the coronavirus pandemic struck India.
Sitharaman announced the scheme in 2019 Budget in July, and the Expenditure Finance Committee in January 2020 approved the PMMSY at a total cost of Rs 20,050.00 crores comprising a central government share of Rs 9,407 crores, a state share of Rs 4,880.00 crores and beneficiary share of Rs 5,763 crores for its implementation for a period of five years with effect from 2020-21 to 2024-25. This was exactly the same scheme approved by Cabinet on 20 May following Sitharaman’s announcement.
Anil Tharayath Varghese from the secretariat of the National Fishermen Forum said the beneficiary share suggested this was an “investment-based scheme,” and in no way constituted coronavirus relief.
“All they are saying is that this is a scheme for five years, and once you start fishing, you can take a loan. But people have not done fishing for the last two months. What about their relief?” he said. “There is no component for Covid-19. There is nothing here that says that we will give you financial assistance.”
National Animal Disease Control Program
As part of the Aatma Nirbhar package, Sitharaman announced Rs 13,343 crores for the National Animal Disease Control Program aimed at vaccinating India’s cattle, buffaloes, sheep, goats and pigs. The same scheme was approved by the Cabinet in May, 2019 and launched by Prime Minister Narendra Modi in September that year.
Micro, Small and Medium Enterprises
As part of the Aatma Nirbhar package, Sitharaman announced funding of Rs 3 lakh crores to Micro, Small and Medium Enterprises (MSMES) to guarantee loans from the National Credit Guarantee Trustee Company Limited, a Delhi-based private limited company, and the Pradhan Mantri Mudra Yojana that provides loans up to Rs 10 lakh, through a guaranteed emergency credit line facility. The government also announced 20% extra working capital for businesses with an outstanding debt of up to Rs 25 crore and sales of up to Rs 100 crores.
There was, however, no fiscal spending to tide over the MSMES that were shuttered in the lockdown.
A week before the Modi government announced the economic stimulus package, former Finance Secretary Subhash Chandra Garg wrote that 10 of the 15 crore workers employed in eight crore MSMES are without a job, and paying 50% of their normal wage for the period of the shutdown (capping it at Rs 10,000) would only cost the government Rs 1 lakh crores. A second package of 1 lakh crore, Garg wrote, should be extended to eight crore MSMES to cover for part of their fixed costs.
Extending additional credit support through banks, Garg tells HuffPost India does not help MSMES because only about 45 to 50 lakh have some credit with the bank, which leaves out the bulk of the eight crore enterprises.
“They suffered income loss, turn over loss and massive unemployment loss. Their backs are literally broken,” said Garg. “I refuse to call it a stimulus package because they don’t need stimuli to grow further, they need support to survive and revive. The package that has come is unfortunately not a support package.”
On the 20% additional loans guaranteed by the government, Garg said the MSMES loan growth has only been 4% to 5% in the past few years, which makes increasing to 20% a challenge. Garg also said that 10% to 15% of MSMES have large non performing loans that considerably reduces their chances of getting additional credits from banks.
The Reserve Bank of India has since March cut the repo rate at which banks borrow twice (now at an all time low of 4%), to make it easier to give out more loans, but this has not led to higher lending — a trend that was persisting even before the coronavirus pandemic due to slower economic growth and mounting bad loans.
“The package does not seem to be addressing the core need of the MSMEs to get some support for the losses they have suffered so that they restart their business now that the lockdown has been largely lifted,” said Garg.
I refuse to call it a stimulus package…
Agriculture Infrastructure Fund
As part of the Aatma Nirbhar package, Sitharaman had announced that a 1 lakh crore Agriculture Infrastructure Fund would be created for small and marginal farmers, and financed by the National Bank for Agriculture and Rural Development (NABARD). Ramakumar, who teaches economics at TISS, said there was no additional spending on part of the government, and NABARD would have to borrow the money from the market.
“It is not actually money spent by the government,” he said. “If you wanted to address the concerns in agriculture, you should have thought of increasing the cash transfers to farmers through a scheme like PM Kisan. If you wanted to address the concern of workers, you should have thought of a new cash transfer scheme for them at least or universalizing the Public Distribution System.”
Pradhan Mantri Kisan Samman Nidhi Yojna
As part of the Rs 1.7 lakh crore Garib Kalyan package unveiled in March, the Modi government had announced a payout of Rs 2,000 each to more than eight crore farmers under the PM Kisan Yojna. Reported by sections of the media as a “big relief” for farmers, the government had only fast tracked the first instalment of Rs 2,000 of a total of Rs 6,000 due to landholding farmers covered under the scheme every year. The money under this scheme, launched in February 2019, is meant to provide income support for landholding farmer families to meet their agricultural as well as domestic needs.
Jean Dreze, an economist and activist, and visiting professor at Ranchi University, told HuffPost India, “For years there has been a pattern of creative accounting to reduce social expenditure, and this is visible again in the critical relief package.”
The Modi government in March had announced a hike of Rs 20 in wages given under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA), increasing the national average wage under the scheme from Rs 182 per person per day to Rs 202. This increase was a routine revision that is done twice a year by the Chief Labour Commissioner and calculated as per the Consumer Price Index for Agricultural Labourers.
2020-2021 marked an 11% rise in the average wage rate, significantly higher than the 1.6% in 2019-2020, the highest since the 7% increase in 2015-16, but still 40% to 50% less than the state-notified minimum wages paid to unskilled agricultural workers. Labour rights activists also questioned how a rise in MGNREGA wages in the middle of a coronavirus lockdown would help rural families given that there was no work to be found and they too were under the lockdown.
Reetika Khera, an economics professor at the Indian Institute of Management, Ahmedabad, said the month of April had seen the least work generated in the past five years under MGNREGA, a program that guarantees 100 days of work in a year for rural families.
Sitharaman announced funding of Rs 40,000 crores for MGNREGA in May, in addition to the Rs 61,500 announced in the Union Budget 2020-2021.
Khera has pointed out that Rs 11,000 of the Rs 61,500 announced in the budget was payment of pending arrears.
State Disaster Response Mitigation Fund (SDRMF)
The Modi government while releasing Rs 11,092 crores to the State Disaster Response Mitigation Fund of 28 states on 3 April called on them to use it for combating the coronavirus. A letter from the Disaster Management Division from the Ministry of Home Affairs to the Chief Secretaries all states said the money should be used for quarantine measures, sample collection, screening, and procurement of essential items and laboratories for response to Covid-19.
Funds under the SDRMF are released every year in two instalments for state governments for responding to natural disasters. The Union Government contributes 75% of funds for general category states and 90% for special category states (Northeast states, Sikkim, Uttarakhand and Himachal Pradesh), and the rest of the money comes from the state government.
The funds for each state released in the first allotment were calculated by the 15th Finance Commission in November, 2019, months before the coronavirus cases were reported in India, and its report tabled in Parliament in February. But no additional money specifically for tackling the coronavirus was released in the first allotment.
The Commission says that it arrived at the final allotment for each state by weighing area, population and risk profile, with Maharashtra getting the most at Rs 4,296 crores and Rs 1,1611 crores in the first allotment followed at a distant second by Uttar Pradesh with Rs 2,578 and Rs 966.50.
Data scientist Nilakantan R.S. has pointed out that this allotment does not correspond to how the coronavirus disaster is playing out in different states in the country.
While Maharashtra has the highest number of coronavirus cases, the next worst-hit states ― Tamil Nadu and Gujarat ― only got half as much relief funds (Rs 510 crores and Rs 662 crores) in the first allotment.
The Fifteenth Finance Commission formula was not designed for the coronavirus pandemic situation, and the vulnerability of states in the face of a public health emergency does not correspond with the disaster risk index, said Himanshu Upadhyay, who teaches development at the Bengaluru-based Azim Premji University. “So, when you use a formula which was not designed for the crisis situation, you will naturally be generating a fiscal prudence disaster,” he said.
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