Who said India’s Covid stimulus package is way less than others – The Economic Times

The reforms announced are far reaching and cover large gamut of activities

The stimulus package is a mix of fiscal support, monetary support, ease of doing business processes, as well as some fundamental reforms.

Over the last week, the only issue being discussed in Indian business circles is how much more the Government of India could have done for reviving the economy, which has stalled due to Covid-19.

The Prime Minister announced the size of the stimulus package as Rs 20 lakh crore – close to 10% of the Indian GDP on May 12. The figure of Rs 20 lakh crore is also very similar to the entire tax receipts of the central government for FY2020-21, if the year did not have Covid-19 related problems.

Subsequently, the Finance Minister provided details of the stimulus package over five days. The stimulus package is a mix of fiscal support, monetary support, ease of doing business processes, as well as some fundamental reforms.

The reforms announced are far reaching and cover large gamut of activities, which most right minded people have been asking for over three decades. There are other reforms such as land reforms, that are happening in various states, which were not even mentioned. There is no doubt or debate about the need of these reforms. These were needed and will take India into a different trajectory going forward as without them India is stifled.

They may require some tweaks and some upgrades going forward. However, there has not been much discussions on these reforms because everyone is focused on the details of the Rs 20 lakh crore package and how much stimulus is given to a specific sector and how much of that will be a giveaway.

Who doesn’t like a giveaway?

Much before the Indian stimulus was announced, the US, Japan, the UK and Europe had already announced huge packages. The cumulative numbers projected as stimulus seem very large and run in to trillions of dollars. Most of us genuinely believe that governments of rich countries have given away the money to citizens and businesses for them to never return. A giveaway.

It looks like our understanding is not exactly correct. Largest part of the stimulus announced even by rich countries is not giveaway. If we compare India’s stimulus package with that of other developing countries with similar per capita GDP, the Indian response to Covid-19 seems to be very large as a percentage of GDP as well as areas it covers.

Across the world, country stimulus responses vary from 1 per cent to 12 per cent of GDP as of now. Rich countries seem to have announced larger stimulus packages (5-10%) and poor countries have announced smaller packages (2-5%).

No country seems to have done large giveaway programmes except for the really poor people in rich countries. Even forgivable loans seem to be connected to keeping employees for much longer than what the eligibility for a business is, putting actual additional burden on the businesses instead of solving their problems. News about some malpractices and mismanagement in the implementation of these programmes in rich countries have also emerged.

Government spokespersons and economists have been saying on television and in print media that they would like to not spend all their ammunition at one go. They would like to come out with newer support modules at appropriate time depending on how long the Covid-19 pandemic lasts. In that context, I presume, the Rs 20 lakh crore stimulus is not the last stimulus package expected from the Government of India.

In almost all countries, stimulus measures have focused on providing food and relief to the poorest and the most vulnerable section till the time the pandemic lasts. In rich countries, it is known as social security or social safety net. In India, it has now come to be known as free ration through ration shops and money transfer through direct benefit transfer (DBT) using Jan Dhan account model.

The second common factor in the stimulus packages has been the money to be spent on providing and improving healthcare available to the citizens. India’s response to Covid-19 across states has been generally commendable given the real tough situation, even the most rich countries find themselves in. It is testimony as much to the skills and commitment of Indian medical professionals but also of the hard work put in by non-state actors across India. With all this praise, we need to also praise the governments at Centre and states. Despite, difficulties, they have been providing as much support as possible to everyone. Given the new infections coming up at faster rate, we have a long way to go.

The third common factor across all stimulus is supporting small formal and informal businesses. Even the US is struggling to provide loans to the SMEs currently. They had to bring two tranches for approvals and are not able to meet most requirements. These are loans and not giveaway. There are reports that 30-50 per cent of all small businesses across all economies will find it difficult to survive. They also generate a large number of jobs in the informal sector.

There are other areas of support given by way of delays in tax payment, interest payment moratorium, loan guarantees for SMEs, cutting benchmark rates, infusing huge liquidity in to the baking system with a hope that they will on-lend to industry, giving loans or guarantees to support strategic businesses like airports and airlines, which have seen their fortunes dwindle. China, the first affected country with tremendous resources at its disposal, seems to be announced very little except for some monetary stimulus as of now.

In effect, the large-scale giveaway does not seem to have been given by rich or poor countries to any significant level in any country as a response to Covid-19. The Government of India seems to have studied many of these models that were announced beforehand and tried to create its own response within the constraints it has.

Its hands are further tied due to the direct and indirect tax income going down drastically due to the stoppage of economic activities across the country. The Government of India has also tried to reduce its own costs by cutting down increases in DA for its employees, reducing MP salaries, perks and other expenses. Many more cost-cutting measures are expected to be announced by Centre and states given the difficulty of managing increasing fiscal and revenue deficit.

Monetisation of deficits cannot be resorted to lightly as it will have implications on future inflation as well as on the expected interest rates. Many economists and commentators have mentioned that the government’s stimulus announcement tries to resolve only supply-side issues. There is nothing to bring in additional demand.

It could be done by way of putting money in the hands of people – without work or by creating large-scale infrastructure projects, creating demands for manpower and goods alike. I hope, the government is working on the demand revival side packages without hurting the fiscal discipline too much.

(Ashishkumar Chauhan is MD & CEO of BSE. Views are personal)

via Who said India’s Covid stimulus package is way less than others – The Economic Times

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