Amidst a pandemic we stand, bewildered by the ever-increasing falls in the GDP growth rate of the Indian economy. It is no surprise that India, the nation that recorded the highest one day spurge in the number of COVID-19 patients has been the worst hit when it comes to the fall in the GDP growth rate which has been recorded at -23.9% for the April-June quarter. But the big question is, what could have been done differently? And what did the government do that worsened the already existing problem?
To understand this, let us have a look at the pre-COVID Indian economy. The term GDP has emerged as a buzz word from the last couple of years. I’ll tell you why. The Indian economy was already in its worst phase before the COVID-19 outbreak, with the GDP growth rate falling to an 11-year low of 4.2% in 2019-2020. The economy grew by 3.1% in the January-March quarter of the year 2019-2020. Whereas just a year ago, the same quarter saw a GDP growth rate of 5.7%. This highlights the fact that the Indian economy was already in a grave situation before the pandemic.
Now, to answer the questions I asked before, let us have a look at what the government did to better the situation or let’s just say, handle the situation.
On the 12th of May, 2020, our Prime Minister Mr. Narendra Modi announced an economic stimulus package of rupees 20 lakh crore. Let us have a deeper look at the details of this stimulus and how beneficial it really was for the common man. Out of this 20 lakh crore, a large portion of around 40%, that comes out to be rupees 8 lakh crore, was a monetary package by the RBI. When we talked about the stimulus packages of other countries, only the fiscal packages were taken into account. But in our nation’s case, the government combined the values of both the monetary and the fiscal packages as a package by the government. This is the first flaw in the huge 20 lakh crore package. A question here arises is that why did the government do something which in itself is unethical and tends to confuse the people? I’ll leave it for you to speculate about.
Talking about the 8 lakh crore rupees worth monetary package by the RBI, the main reason behind this was to inject liquidity in the economy. Injecting liquidity in simpler terms aims at increasing the ease with which an asset can be converted into cash by lowering its interest rates(repo rate) on loans that it provides to various banks in the country. When the banks avail credit at lower rates, it increases their ability to lend at lower rates as well which makes the loans cheaper for the borrower. This way, liquidity is injected into the economy.
Coming back to the fiscal package by the government which for real is worth rupees 12 lakh crore. There was a package worth 1.7 lakh crore which was already announced before this huge stimulus package. This package was also included in the real 12 lakh crore rupees fiscal package. An article by New Indian Express highlighted other old schemes that were again included in this fiscal stimulus. The PMMSY Scheme, which was a part of the Budget 2019 is one of such schemes that was again accounted for.
Now focussing on what real impact did the package have. For the MSMEs, the government provided for rupees 3 lakh crore worth collateral free loans. The thing to keep in mind is that these are loans, no money is being given out for free. A liquidity infusion worth rupees 90,000 crores was promised for the Power distribution companies. The farmers were promised concessional loans worth rupees 2 lakh crore. A special credit facility worth rupees 5,000 crores was introduced for the street vendors. Furthermore, the common man’s own money has also been accounted for in the fiscal stimulus. For instance the TDS reduction by 25%. This provides no real benefit. It’s just that for the moment, the liquidity would increase. Similar is the case of the reduction in the EPF contribution from 12% to 10%. This was people’s own money which they would have accessed later. A free supply of food grains for 2 months i.e. June-July for the migrant workers was promised that was to cost rupees 3,500 crores. However, all of us saw the plight of the migrant workers all around the media which points out to the failure of providing this benefit at the ground level. The government also promised employment to the migrant workers who returned to their hometown under MNREGA.
Although, this stimulus helped a few companies and individuals, but for the common man it just increased financial pressure in the long run as they will have to return these loans someday.
Direct money transfer into accounts of the most vulnerable sections of the country would have helped revive small businesses and could have prevented them from being shut down. It would have been really helpful to those below the poverty line and without a fixed source of income in surviving the economic slowdown. A significant reduction in the income taxes of the lower-income groups could have helped revive the consumption demand in the economy. The focus of the government should have been to increase the disposable income of the people. The disposable income refers to the income of an individual minus the income tax that he/she has to pay. The interest for the moratorium period on the loans given could have been written off in order to reduce the burden on the already suffering people.
Instead, the government focused on hyping up the so called huge fiscal stimulus as if the number itself would have saved lives.
Another major drawback of this Wannabe Stimulus I believe is the fact that the entire burden of the slowdown has been on the people itself. Also, you might be wondering that what is the actual amount that the government really spent excluding all the loans, the old schemes and projects that were included. According to Barclays, a famous financial services company of England, the amount is 1.5 lakh crore rupees. HSBC India estimated the amount to be around 2 lakh crore rupees. The fact that the government called it a 20 lakh crore rupees stimulus and its poor implementation makes it a WANNABE STIMULUS.
Actions speak louder than words. I know you have heard this phrase before. I’m afraid the government hasn’t. What do you have to say about this? Was it really a Wannabe Stimulus according to you? Do let us know in comments below.
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