Updated: November 13, 2020 7:56:41 am
Union Finance Minister Nirmala Sitharaman in New Delhi on Thursday. (Express photo: Anil Sharma)
Atmanirbhar Bharat 3.0 It may well be Finance Minister Nirmala Sitharaman’s last aid package ahead of the 2021-22 budget, but there is a discernible pattern in the four major announcements made over the past seven months. It reinforces the ideology of ‘fiscal conservatism’ of the government of Prime Minister Narendra Modi: instead of large cash transfers, the growth philosophy focuses on creating an ecosystem that helps domestic demand, incentivizes companies to generate jobs and boost production, while at the same time extending benefits to those in grave danger, be they companies or individuals.
The main figures (29.87.641 crore stimulus or 15 percent of GDP to date) are more for the optics. For example, Sitharaman said Thursday that the government’s contribution to the stimulus so far was 9 percent of GDP, with the balance of 6 percent attributed to the Reserve Bank of India (RBI). It put the size of Thursday’s Atmanirbhar Bharat 3.0 at Rs 2,65,080 crore. Even if one has an optimistic account of the additional spending this year, it will add up to only Rs 1,18,200 crore, not even half of what he said. The expenditure of Rs 1.45.980 crore in the form of Production Linked Incentives (PLI) for 10 new sectors will be over the course of five years, probably only starting the next financial year.
But even the additional spending of Rs 1,18,200 crore this year is by no means negligible: it represents 0.6% of GDP. The first package on March 27, the highlight of which was the Pradhan Mantri Garib Kalyan Yojana, totaled Rs 1.08 lakh crore; the second set of announcements made over five days in May added another Rs 1.08 lakh crore to the Center’s fiscal cost; October’s third package had a capex component of just Rs 37 billion. Taken together, all aid measures would increase the Center’s real fiscal spending by less than 2% of GDP in 2020-21.
Given the recovery charted by the economy in the past two months and the trajectory of the pandemic, in terms of addition to active cases, and low fatality numbers, not many economists today advocate large cash transfers to the poor. In any case, the right time for large transfers was April, May and June. “Given the uncertainties of the pandemic then, the government decided to assess the distress and also save the firepower for the following months … Now, after unlocking, the economic recovery has been better than expected. What’s the point of handing out money now? ”Said an economist, who works closely with the government.
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Nirmala Sitharaman addresses the media in New Delhi on Thursday. (Express photo: Anil Sharma)
So what the government has done over the past seven months through its numerous aid packages and reform measures is to create avenues or open opportunities for the primary and secondary sectors (dismantling mandis in agriculture and simplification of labor legislation for manufacturing) to improve revenue.
At the same time, by offering to pay the bill for provident fund contributions, he has prompted companies, large and small, to hire. The PLI scheme, which now extends to 10 emerging sectors, including auto and technology, is also as much about self-sufficiency or reducing imports, as well as offering cash incentives to boost domestic production, which is expected to create jobs. .
In the first few months, the government put money in the hands of the most vulnerable through direct benefit transfers and also offered more food grains for basic livelihoods. And now, for the frontline sectors most affected by the pandemic, it has expanded the credit guarantee scheme, which offers a one-year moratorium, and extends the repayment term to four years compared to the three years set for MSMEs original beneficiaries of the scheme. It’s not that this strategy doesn’t have opposite sides. As the RBI noted in its ‘State of the Economy’ report on Wednesday, although it is possible that the third quarter (October-December) may not see a contraction in GDP growthThere are significant risks: the relentless pressure of inflation, weak global growth after a second wave of Covid-19, and heightened stress among households and businesses. .📣 Express Explained is now on Telegram
Former Indian chief statistician Pronab Sen noted that household financial savings rose to almost 21 percent of GDP in April-June this year (compared to 10 percent of GDP in the corresponding period last year) because individuals were unable to spend due to a complete lockdown.
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“For the next two quarters, families drew on their savings and financial savings have likely decreased. This has also coincided with the festive season. The high frequency economic indicators look bright because they reflect this pent-up demand and holiday shopping, ”Sen told The Indian Express. The concern, according to him, is that income levels have not increased and the third quarter may not be so optimistic. “The last quarter and more the first quarter of 2021-22 will certainly show positive growth due to the huge base effect,” he said.
But not everyone is so concerned. A policy analyst, who also works closely with the government, said the country’s richest 10 percent consume more than people in the bottom 50 percent of income levels. “And for the bottom 50 percent, spending cannot be reduced beyond one point. Discretionary spending for them will be low, but their spending on essentials is unlikely to decrease from what it is now. However, the rich have started spending. Wages have been restored in all sectors, ”said the analyst.
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