The announcements made by the PM and FM need greater clarity on govt spending, its financing and future plan of action
An after Prime Minister Narendra Modi announced Rs 20 lakh crore package to help an already struggling economy get back on the rails after pandemic setback, Finance Minister Nirmala Sitharaman on Wednesday was found struggling to add up to the figures. She made some disclosures, most of them were already included in the annual budget or were part of the financial sector. But, sadly all these announcements do not add up to Rs 20 lakh crore. The question arises, if the PM was so sure of the total value of the financial package, its components should have been made readily available to the Finance Minister. Nirmala Sitharaman’s figures have thrown more questions than she has answered the queries about the components of the package. Firstly, Rs 52,606 crores earmarked for Jan Dhan Yojana, have already been transferred to 41 crore account holders and were part of the current year’s budget, so this was not the additionally.
Secondly, PM Garib Kalyan Yojana was announced in March this year. The only thing is its extension by three months announced by the Finance Minister. Rs 1.7 lakh crore package in March was mainly aimed at providing insurance cover to medical practitioners and this amount was to be paid to the insurance companies, most of them owned by corporate entities sympathetic to Modi, and not the medical practitioners. This is just reiteration of the already announced package. Thirdly, injecting Rs 90,000 crore to financially stressed state electricity distribution companies, through PFC/REC, while restricting the government’s outgo, is at best a stop-gap arrangement as it does not address the core of the problem. Rather, the government should be pushing through contentious reforms in the power distribution segment, as the draft amendments to the electricity law seek to do. The only beneficiaries in these measures are likely to be a handful of known private players, who are into electricity distribution business. Fourthly, to encourage flow of funds to parts of the financial system, the government has announced special liquidity schemes of Rs 30,000 crore to buy investment grade debt of NBFCs, HFCs, and MFIs, and Rs 45,000 crore for investment in lower rated papers. But the question is: Will risk averse banks lend to lower rated NBFCs? Other administrative and regulatory measures which include lowering the rate of tax deducted at source, extending relief to contractors, and relaxations for provident fund contributions will help ease liquidity constraints in the broader economy.
Fifthly, the Centre has announced collateral-free loans for MSMEs with a turnover of Rs 100 crore to the tune of Rs 3 lakh crore, where both principal and interest risk will be borne by it. This measure, while limiting the immediate outgo for the government, should encourage risk averse banks to lend to MSMEs. This is not part of the fiscal policy or state budget expenditure, so the government is not spending anything on it. Sixthly, Rs 2500 crore Employees Provident Fund support for businesses and workers is not a budgetary expenditure. EPF belongs to the employees and giving them a loan for a period of three months from their own fund is not favour. Seventhly, doing away with global tenders for government procurement up to Rs 200 crore to protect Indian companies from global competition may lead to inefficiency and lack of transparency in public purchases. The common masses have nothing to relate to this measure. Lastly, tax refund of Rs 18,000 crore made to Income Tax assesses touted to be benefitting 40 lakh tax payers is no favour. Because this is limited to a ceiling of less than Rs 5 lakh and applications have been pending in the Income Tax offices and only genuine ones are accepted. The applications of tax refund beyond Rs 5 lakh are still pending and money of the people is held in the government department for no fault of the tax payers.
It is unfortunate that Nirmala Sitharaman has sidestepped questions over the quantum of additional spending being undertaken, how it will be financed and what are future plans of the government on borrowing from the public. The first tranche is only Rs 6 lakh crore as per the figures made available in the public domain. It is possible that future announcements may add up to Rs 20 lakh crore in total. While the government has announced a revised borrowing calendar, it is likely to be only enough to plug its revenue shortfall. This lack of clarity will keep bond markets on tenterhooks.
Not much was also shared on the anticipated land and labour reforms. She was also unable to explain what additionality has been made for the migrant workers, who have been running from pillar to post for reaching their native villages or towns and how they will be paid wages for the lockdown period after they have exhausted their money and lost employment. The Finance Minister also parried a question on Thursday about the inclusion of newspaper industry in the package, which has suffered immensely in the wake of lockdown and loss of advertisement revenue as a result of fall in circulation. It is expected that in the next set of measures, the Centre will focus on how the government plans to stimulate the economy, and the structural reforms it intends to implement.