Sunday, July 5, 2020

Atma-nirbhar Bharat Economic Package 101

The world has experienced several outbreaks that have transformed history and the medical world. In the realm of infectious diseases, a pandemic is the worst it can get.

Communicable diseases date back to the hunter-gatherers day, but as we went ahead with the civilization, the epidemics became easier. From the first-ever pandemic recorded during the Peloponnesian War in 430 BC to the ongoing Covid-19 outbreak and all in between have changed the world in their own ways. The governments, market, people, and everyone have seen effects ranging from economical to mental. The policymakers across the countries are racing to implement the fiscal and monetary policy to push back the predicted recession. Some events that have already left the world nerve wrecked, which counts from the crashing of the stock market to the negative oil prices. A pandemic is a situation that is unique in itself; the wrath of the coronavirus has brought some of the superpowers at its knees. While the United States of America now fights 17,83,132 cases (as of 30th May 2020, 5:36 pm) and a 24% GDP drop, Australia becomes the first country with 1% of its population being tested positive. Thus, the effects, being economical or mental, varies from country to country depending on the early action course, measures during the pandemic, health, and economic status.

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India, on the other hand, battles with exponentially rising cases, currently at 1,74,355 ( as of 30th May 2020, 5:52 pm). The recession that will follow, according to the experts, will be the worst of all times. Recovery will not be an easy path. Though, the country for sure has faced crises such as one of the worst of 1979 with oil shocks and droughts, the East Asian crisis in 1998-99, an economic slowdown in 1995-97, and the latest 2008 financial crisis. Something to worry and notice here, as we talk about GDP, is the falling trend since the past 18 months thus, the next crisis that the country will face will not only be a recessionary crisis but with an attached humanitarian element, where the starvation for basic life necessities such as daily wages, jobs, shelters, and food will be real. 

Already being exposed to the banking and the NBFC crisis, outstanding payments, low per capita income, population pressure, poor quality of human capital, and several other problems taking the right steps in this hour is what would ensure the life of the economy for the next few years. Thus, to combat the escalated problems, the center announced the ‘Atma-Nirbhar Bharat Abhiyan Economic Package.’

It is a 20 lakh crore package, worth 10% of the country’s GDP which majorly contributes to the Pradhan Mantri Gareeb Kalyan package, collateral free automatic loan for MSMEs (Subordinate debt for stressed MSMEs, Equity infusion for MSMEs through funds, Revised definition of MSMEs, EPF supports extension, EPF contribution increased to 10%, and other interventions for MSMEs), Special Liquidity Scheme for NBFCs/HFCs/MFIs (Partial credit guarantee scheme), liquidity injections for DISCOMs (relief to contractors, extension of completion dates for real estate projects, reduction in TDS/TDC rates), direct support to farmers (liquidity support, support for migrants and poor, labour support (free grin supply, one nation one ration card, affordable housing (MUDRA shishu loan, credit facility for the street vendors), boost to the middle income group and housing sector (employment push using CAMPA fund, additional funding through NABARD), Credit boost through kisan credit card, push to animal husbandry, fisheries, infrastructure for farm gate, micro-food enterprise, Pradhan Mantri Matsya Sampada Yojana, herbal cultivation, beeking, operation green, best price realisation for farmers, policy reform to fast track investment, mapping of industrial land, introduction of commercial mining in coal sector, development of coal infrastructure, development in the aviation sector, traffic and health policy reform and enabling ease of doing business.

However, like in every other step, there are few fallacies which the government tends to overlook, and in times of such critical condition, it becomes even more important to analyze the self-reliant package and take note of the sectors being overseen. According to the estimates of the national council of applied economics, the economy will contract by 12.5%, having an enormous impact on businesses and people’s livelihood, which in turn would affect every part of their life. So, has the government not spent enough to address the immediate need in order to reduce the pain in the coming days or has saved the gunpowder for more adverse times in the coming month?

The self-sufficient relief package indicates that the government wants to wait and look to take more aggressive steps once normalcy has been restored in the movement of people and goods and services. The well-known Think Tank suggested that if India increases public expenditure worth 3% of the GDP, we can expect the economy to be in the positive territory (6 lakh crore), and as per the records, the government has only spent about 1.1% of the GDP. Where the rest of the world is launching a massive cash stimulus, India’s lack of political will and lack of capacity to imagine how better we can serve the people. It surprises people that there are not enough measures for the small businesses that stand at the bottom of the pyramid or the entrepreneurs that the government believes will be the top corporates in the future.

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Whereas, there are two aspects that stand out and have the potential to make a mark amid the chaos. One of which is the reforms for MSMEs, which employs about 11 crore people and contribute a solid 30% to the GDP of the country which is the hardest hit due to the size and nature of the work and an addition to which do have a big profit margin and cash at disposal to survive a tough period says, Udit Mishra. A large percentage of the migrants who are now left all on their own are majorly from the MSME sector and have faced the most monetary crunch.

The highlight of the package remains the step where the government provides 3 lakh crores to the MSMEs, which were doing alright before the pandemic, and if faced with the inability to pay back, the government would take care of the same. Another development is the change of the definition of MSMEs where from being identified by the amount of investment they put in their machinery to now being identified by the turnover. Another measure that stands out is the proposal of “ One nation, one ration card,” whereas there are certain logistical limits, regarding how much grains does a particular shop keep due to demand fluctuations. So far, 17 states and UTs have come on board with this and are trying to make it work.

Thus, the partial universalization has its own flaws. Another realization where the government has nailed is restricting the monopoly of the “mandis” enabled direct selling through the farmers and allowed free trade of farm produce across borders. At present, there is no sure-shot way of knowing what will be the final level of government spending at the end of this financial year. Most calculations suggest that — far from the promised level of 10% of the GDP — the actual government expenditure in the Atmanirbhar Bharat Abhiyan is just 1% of GDP. And we still don’t know if this 1% (of GDP) expenditure is over and above the Budgeted expenditure or will it be funded by expenditure cuts elsewhere. 

It is clear then that Atmanirbhar Bharat Abhiyan economic package is likely to do little for India’s economic growth in this financial year, and that is why it is being criticized.

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