The Finance Minister’s ₹1.7 lakh crore stimulus package, to help India tide through the harrowing times that the coronavirus lockdown presents, is a welcome move. Barclays pegs the economic cost of the 21-day lockdown at ₹9 lakh crores, or around 4% of the Indian GDP. The biggest highlights are that of medical coverage for the health workers, to the tune of ₹50 lakhs, and extended rations for the poor (10 kg rice/wheat, and 1 kg of pulses for the next 3 months) along with Direct Bank Transfers (DBTs) for the needy.
The government has also systematically allocated resources so as to ensure smooth implementation. The Ujjwala scheme will provide 8.3 crore BPL families with free cylinders for the next three months. The daily wage rate for MNREGS workers has been hiked by ₹20 to ₹202. The old, infirm and widows will be paid an ex-gratia amount of ₹1000, which will be paid in 2 installments. Additionally, 20 crore women with Jan Dhan Yojana accounts will also be entitled to ₹500 per month, for the duration of the next three months to compensate for the downturn during the lockdown phase. For the organised sector, Sitharaman said EPF contribution of both employer and employee (12 percent each) would be paid by the government for the next three months, with some riders on the inclusivity net of such firms.
However, it is to be noted that the cash transfers along with the MNREGS hike is very minimal, and may not bring substantial relief. The MNREGS hike was due anyway. However, as many states have closed down the sites for such labour work, it is unclear how many can pragmatically benefit from such an increase. The relief package comes ladled with considerable financial burden for the government, at a time it grapples with the slowdown in the domestic economy and a low-lying world order. As the heavy bill of ₹1.7 lakh crores cannot be raised by taxation alone, the government may eye raiding the RBI’s treasure trove in the form of annual dividends, and possibly look for deficit financing through bonds.
The relief package comes with a considerable financial burden for the government, at a time it grapples with the slowdown in the domestic economy and a low-lying world order. However, in coming out with such a package, the government has done the right thing on both the personal and the societal level. It has avoided unwarranted deaths out of starvation, neglect, and other tragedies, while at the same time, it has also ensured that small industries and firms are not obliterated by the crisis that has the potential to set the economy into an anarchical state. The markets, which rallied by several points today, is perhaps indicative of the same. Yet, immediately after the crisis resides, the government must take immediate steps to kickstart the faltering economy, failing which the benefits provided for by the stimulus package would be foiled.
It would only be a matter of time before we can academically evaluate the benefits of government intervention into the humanitarian challenge that confronts India uniquely.