Seen against the scale of economic distress, and expectations raised by the prime minister’s announcement of a Rs 20 lakh crore package, the measures announced by the finance minister over the past few days have been underwhelming, to say the least. As things stand, the actual and immediate fiscal outgo works out to just around 1 per cent of GDP — a pittance — to alleviate the distress unfolding across the country. A crisis of this magnitude needs to be tackled at multiple levels — relief for the most vulnerable, support to specific sectors, short-to-medium term measures to boost demand, and structural reforms. But, so far, the government’s response has centred around only providing some relief measures, extending liquidity to select sectors, and stating its intent to push through contentious pieces of reform. Direct demand-side support has been minimal. This signals a disappointing under-appreciation of the risks to the economy.
The measures to alleviate the suffering of the vulnerable are too little, and in many cases, too late. Expanding the provision of foodgrain through the public distribution system is welcome. But the delay in pushing through the portability of benefits is not. By the government’s own admission, this process will take months. Perhaps a better alternative would be to universalise the PDS temporarily. Cash transfers of Rs 500 are simply inadequate to tide over this period of crisis. The JAM trinity could have also been utilised more effectively, and more imaginatively, to provide short-term income support. And while increasing allocation to MGNREGA is the right step, the number of days of work provided should also have been increased. Announcements aimed at alleviating the pain in other parts of the economy have been too few, comprise largely of contingent liabilities, entail very little actual fiscal outgo. While government finances are constrained, adherence to fiscal conservatism at a time when governments across the world, even those ideologically committed to conservatism, are loosening their purse strings, is a let-down. Considering that, of the four engines of growth, only government spending can drive economic activity as this stage, this was the time to ramp up spending. On the question of reforms, the announcements so far mostly spell out the government’s intent. Surely, for issues that have been on the policy agenda for years, the details of what is being done, and how, should have been worked out by now. All this only suggests that the 50-day lockdown period has not been effectively used by the government to firm up its plans.
As this health crisis is likely to play out over the coming months, there is an argument for the government to keep the power dry — for the unknown unknowns that may yet come. But, on the other hand, the longer the delays in dealing with the problems, the more severe will be the consequences, and greater the intervention needed. This pandemic has led to both demand and supply side shocks. Given the scale of disruption, far greater policy support is required than has been visible over the last five days.