An economic package that misses the point | Deccan Herald

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Neither does the math work out nor do the announced measures handhold the most battered sectors

The hoteliers are upset, airline industry executives have been left wondering about their fate and the automobile sector is aghast at the absence of any direct measures to ease their woes. One of the most vocal supporters of the government – the Confederation of All India Traders (CAIT), a collection of small traders – is also stunned at no specific announcements for this sector in the stimulus package announced by the Central government. 

As Finance Minister Nirmala Sitharaman gave a detailed breakup of the Rs 20 lakh crore package while summing up the measures, there were many proverbial shakes of the head. The package comes to about 10 per cent of India’s GDP and at first glance and appears a generous one. But the fine print shows that neither the math works out nor does it handhold  sectors most battered by the COVID-19 induced lockdown.

Doubtful math

Many of these sectors had been petitioning the government for direct relief measures for weeks. Industry associations too had been asking for measures to stimulate demand. Not just industry, economists were also perplexed by the fine print since the claim of the government about offering help worth10 per cent of GDP seemed doubtful.  

A Mumbai-based brokerage said the actual fiscal cost of the package in FY21 could be less than a percent of GDP, a fraction of what the government has claimed. 

A large part of the package is in the form of credit/guarantees, there is little by way of tax relief to stressed sectors and demand stimulation measures are absent. The government has also eschewed suggestions by Nobel laureates Amartya Sen and Abhijit Banerjee to put larger amounts of cash in the hands of the poor though in a welcome move, it has enhanced allocation under the rural jobs guarantee scheme, MGNREGA.

Hospitality, auto & airline sectors go empty handed

The hospitality industry has been battered by the lockdown.The hotel industry now says more than two in three hospitality establishments may shut down. But the important sector’s demands were not addressed by the government. 

The auto sector too has been badly hit since the lockdown started in the last week of March 2020. Vehicle sales had completely ceased and have only now restarted in a limited fashion. Although industry representatives had discussed specific suggestions, including reduction in base GST rates to 18 per cent for a limited period and an incentive-based vehicle scrappage policy, no immediate stimulus to boost demand for this sector was forthcoming. 

As for the airline industry, the only mention it found in the entire stimulus package was when the FM spoke about optimum use of airspace. Like automobiles, sale of airline tickets has also been in limbo for nearly two months now and the ratings agency Crisil has estimated a hit of Rs 25,000 crore for the aviation industry.  The sector was hoping for not just relief in taxes on jet fuel as well as other levies but a specific package geared to get the industry back in the air.

To make matters worse, the government has capped ticket prices for domestic flights, which are set to restart soon. Not only would this be a reversal of the hands-off policy the government has adopted all along for air fares, but it would also bring some weak airlines to their knees since dynamic pricing allows airlines around the world to maintain yields (revenue per passenger). Dynamic pricing means ticket prices rise as the aircraft seats get filled up and the government already has an upper ceiling in place for each sector.

No relief for small traders and big business

CAIT has also expressed its severe disappointment at the package and has now asked the FM to include small business under MSMEs. Business chamber FICCI for its part says it is hopeful about the government considering further measures to support tourism, hospitality, aviation and healthcare. It requested that a minimum amount of Rs 20,000 crore be allotted for these sectors as they have seen a maximum dip in demand and will also take much longer to recover from the set-back seen. For large corporates, the body recommended a “COVID liquidity bridge” of Rs. 10,000 crore for providing guarantees to banks to give them comfort to restructure/extend loans to companies whose balance sheets have been impaired due to the lockdown.

Whether the government comes up with more relief measures remains to be seen but one thing is clear: This stimulus package seems to have united disparate sectors in their disappointment.

(Sindhu Bhattacharya is a senior journalist, writing on business and economy) Disclaimer: The views expressed above are the author’s own. They do not necessarily reflect the views of DH.

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