September 7, 2020 4:35:13 am
While a contraction in GDP was expected from April to June, there are clear signs that the second quarter will also contract, and July and August show no promise of a major recovery. (Proceedings)
AFTER MORE THAN 100 days since Finance Minister Nirmala Sitharaman announced an economic package, six weeks after a series of meetings at the highest level underscored the need for stimulus and official estimates indicating the worst contraction in GDP From the first quarter of 23.9 percent, the Government has finally identified the “non-salaried middle class and small businesses” as the target audience for a second round of stimulus.
In mid-May, Sitharaman had announced five tranches of the AtmaNirbhar package, in addition to an economic package of Rs 20 lakh crore. Much of it was liquidity support, with additional fiscal spending by the central government of just over 1% of GDP. While a contraction in GDP was expected from April to June, there are clear signs that the second quarter will also contract, and July and August show no promise of a major recovery.
With a clearer picture now available, the government appears to have focused on who needs the most financial support, but is still debating its timing and mode of delivery. “This round of fiscal stimulus will be more for the group that is not quite poor or rich. This middle class, the non-salaried middle class, is the most affected. The timing of the launch is crucial for maximum benefit, ”said a senior government official. The Indian Express.
Meanwhile, even as several inter-ministerial discussions were taking place, Prime Minister Narendra Modi chaired presentations by members of his Economic Advisory Council, NITI Aayog, the office of the Chief Economic Adviser, the Ministry of Finance and the Ministry of Commerce. . A consistent message in the presentation of EAC, NITI and CEA was the need for fiscal stimulus and support to the financial system, said more than one of the 50-odd participants in the four presentations held over 10 days in late June and early June. July.
With nearly a dozen Union cabinet ministers attending these meetings, participants left with a sense of optimism because they saw it as a sign that the Prime Minister was building consensus within the government for further encouragement.
Will it be late and little?
IN DEVELOPING presentations to the Prime Minister six weeks ago, NITI Aayog, the Prime Minister’s Economic Advisory Council and the Office of the Chief Economic Adviser in the Ministry of Finance, made two important points: one, the economy needs a fiscal boost, and two, the financial system needs support. The government has focused on the target audience, but is still calculating when and how much.
Those present at the meetings included Sitharaman, Rajnath Singh, Amit Shah, Nitin Gadkari, Piyush Goyal, and Gajendra Singh Shekhawat.
But the government has barely made any announcements in the past six weeks based on these discussions. “We have the impression that the government is going to press the accelerator … but it does not seem like that,” said an official.
The government, one official said, believes it has provided the poor substantially in terms of availability of food grains, cooking gas and income from MGNREGA work. “The urban and rural non-salaried population, which is not poor and does not have an assured income, is the one that has been left out of the previous packages. These are small business owners and shop owners, like an air conditioning repair shop or the like, ”said the official.
“There is a general consensus that more demand is required. But funds are limited and there is a binding factor in the quantum. It is not clear what can be done to make it directly effective. There are different opinions, we still have to work on the details, ”said the official.
Furthermore, there are expectations that the services sector, especially the non-financial services sector, will continue to lag behind for some time. It is known that there have been several discussions about whether a tax exemption could be granted for a limited period of time to restaurants in the service sector, but the decision did not materialize as it was thought that it might not generate an immediate boost to demand. consumer, another said the official.
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