With the economy sliding into an abyss, the Prime Minister’s announcement of a “₹20-lakh crore package” has not come a moment too soon. Some of the details of this package, spelt out by the Finance Minister on Wednesday, are likely to boost production in MSMEs and actually get banks to lend — something that they have steadfastly refused to do, despite numerous efforts by the Reserve Bank. Notable is the ₹3-lakh crore corpus for collateral-free loans (of a four-year tenor) to be made available to an estimated 45 lakh MSMEs for which the government will stand guarantee — finally confronting the problem of risk aversion in the banking sector, which continues to park record sums in the reverse repo window. The Centre should have acted earlier on this score, as the recession-hit developed countries have done. The ₹90,000-crore liquidity relief to Discoms will revive funds flow in the power sector, with generation companies being able to revive production. Here too, the Centre is expected to act as guarantor for loans given by the power finance corporations. Steps to restrict tendering for government procurement to local units for orders below ₹200 crore, are in keeping with the Prime Minister’s emphasis on a self-reliant India, and do not run foul of WTO provisions.
However, there can be no escaping the impression that the fiscal stimulus is nowhere near ₹20-lakh crore number stated. The credit guarantee schemes announced by the Centre, amounting to about ₹4 lakh crore, are likely to be accounted for as contingent liabilities in the Budget. But the extent of annual provisioning on this score is not clear. In fact, if the increase in the borrowing limits for this fiscal is any indication, the fiscal stimulus is likely to be in the region of ₹4.2 lakh crore. It is perhaps the lack of clarity on revenue flows — GST collection figures for April have not yet been released — that has prompted the Centre to be circumspect on this score. Even so, a reallocation of expenditures to boost demand will supplement the credit push. A credit-driven stimulus is likely to be less effective than direct public spending in times of crisis. As for spurring consumer demand, the TDS/TCS relief is illusory.
Both Covid and the recession it has engineered are unlikely to go away in a hurry. However, the Prime Minister’s idea of transforming the crisis into an opportunity by focussing on self-reliant production seems a bit vague. For India to emerge as a leader in manufacturing and symbolise excellence, it needs to invest far more in human capital. A race-to-the-bottom approach in terms of labour and environment regulation is no way to become a global leader. More far-reaching business and social reforms are expected by way of a ‘package’.