The economic package: Few takeaways–Times of India

Clipped from: https://timesofindia.indiatimes.com

Difference is of ten times – the government announced economic package is around 21 Crores, more than 10% of GDP, while many observers say the actual infusion is only around 2 Crores which comes to barely 1% of GDP.  Government economic and Niti Aayog officials and many experts supporting the govt side of the story feel that govt calculation of 21 Lakh Crores is well on the ground and this is how government across the globe calculate the economic infusions. This debate apart, there are serious discussions, political statements and usual welcome and rejection of the move depending on either political compulsions or personal wisdom as well as prejudices. There will be many factors – most of them uncertain – on which the real quantum of outlay will depend. In plain language, if one goes to establish an enterprise, he provides for the cost – for land, capital, labor, raw material, distribution channels etc – and put aside the required money. But while he goes ahead various external factors do come in picture putting their effects on the costs as well as the extent of success of the venture – the actual input costs may reduce or enhance, the project may have enormous, full, partial success. Many of the heads in the package are based on many assumptions and expectations the way the future economic environment may or may not behave. This is true of any package anywhere at any of the given time. The real input and inflow may be known as the processes move, take shape and proceed on the way. The exact immediate cost of the package would be known only for the items under the package where direct physical money is being provided to the beneficiaries.

For Finance Minister, the package was ‘not just a financial package but a reform stimulus, a mindset overhaul and a trust in governance’. For the Prime Minister the package is his vision of ‘Atmanirbhar Bharat’, to have pride in being ‘Vocal for the Local’ and India leading the world towards ‘Jai Jagat’. Only time will tell how much and how far the package reaches its avowed goals and realize Prime Minister’s dream. But in the face of the things, as they are, the package appears to be quite ambitious and well thought of. The country had been in too bad shape of the economy in all parameters pre-pandemic too and a stimulus was already injected in the last leg of March envisaging, among other things, direct cash transfer and free grains to poor.

The five-chapter package declared by the Finance Minister over five days seek to encourage i) MSMEs, nonbanking and housing finances ii) about relief and assistance to migrant workers, farmers, street vendors and small traders iii) encouraging agricultural reforms and farming infrastructure iv) structural reforms in aviation, coal and defense, and v) enhancement of MGNREGA allocation. While impetus will be felt to almost all the sectors, there appears to be few prominent takeaways – Firstly, the package is heavily tilted towards the rural sector, Secondly, small traders, poor and semi-urban is encouraged more and thirdly, there is a major boost to privatization and encouragement to the entry of private players to almost all sectors including defense atomic energy and space. No PSU would be required other than ‘strategic’ sector.

There is too much for villages, farming and rural sector in the package and the outreach is too evident. The very first stimulus in March last week was Prime Minister Garib Kalyan Package talking about direct cash transfer as well as free grains to the poor. This was a 1.7 Lakh Crore package, equal to 1% of GDP. The package was exclusively for poor and vulnerable in the unorganized sector such as building and construction workers, which included direct cash transfers, free gas cylinders to Ujjwala beneficiaries, increase in wages under MGHREGA and also one-time transfer of five hundred per month for three months to Jan Dhan accounts of women. FCI, NAFED and state governments made the huge task of distributing grains to the needy. The sum total of the package was huge, pure and tangible directly and immediate relief to the target groups. It was the first phase of lockdown and the tasks were completed in a truly efficient and exemplary manner providing tremendous relief to the sector.

In the main package announced now too, there is much to encourage farming of herbs and unique crops, fisheries and dairy as well as infrastructure like storage and processes like micro food units. Most importantly, many legal framework have been promised with regard to farming, storage and distribution. It may take some time to materialize these proposed legislations but if and when these take shape, there will be a sea change in the outlook of our villages and the farming. There is also focus on a special type of regional crops such as Ragi or Makhana where these crops would be encouraged by financing and subsequent trade. There is also the impetus for animal husbandry, poultry, fisheries, forest management and soil conservation which would have long term impacts. MGNREGA, again and again, got sever boots and enhanced allocations.

There is a huge push for MSME, urban poor and street vendors. Credit guarantees for MSME and again credit facilities to street vendors would boost their status and would provide more space to their spread of activities. Finances to MSME would go long way generating employment. However, there may be a shortage of demands and also labor which would make the sector hesitant to look for fresh finances at least as of now. However, as the situation improves and we open up completely this would prove to be a great booster.

Permitting private players to enter into sensitive activities and production like defense, space and atomic energy would require great caution and very careful thinking about how, whom and to what extent the space is provided to private players in these areas. For on these activities we depend hugely on foreign export and support. Are we going to invite them to make in India or encouraging our indigenous entrepreneurs to try their hands upon them, would be a question to ponder over prudently. Then, again, the extent and nature of those permissions have to be worked out before we proceed in the direction.

Role of PSUs, of late, has become a subject of eternal debate. We are neither able to come to a definite ethos nor are able to proceed ahead in any direction. The PSUs who are quite able to compete, grow as cash cows must be allowed to continue in whatever sector, for they remain solid arms for the government. There is no equity disturbing and disbanding even commercial entities like LIC of India which continuously proved its credentials and there is no wisdom in not able to sell out Air India for years together having decided to do so. There are around twenty undertakings and organizations only under Indian Railways – working from engineering to infra to ticketing to cooking! Then we have organizations like DRDO, ISRO and HAL too. Privatization only is not the panacea – a Yes Bank may also be in shambles with all the ills requiring the govt to bail out. We have to first decide where to go and then only to make the path – create robust, uncompromising and unrelenting system of regulation!

As we go ahead with the package, there would be too many challenges besides and beyond the pandemic too – the government would have sleepless nights monitoring its own dream and those monitoring would only show how serious the dreaming was eventually!

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