With Covid-19 having massive social and economic impact across the globe, several emergency fiscal and monetary measures have been taken by central banks and governments the world over to tackle the crisis.

From announcing massive economic fiscal stimulus packages to emergency monetary policy actions, various countries have been dealing with the pandemic on a war footing.

In India, Finance Minister Nirmala Sitharaman has announced a ₹1.7-lakh-crore stimulus package under the Pradhan Mantri Garib Kalyan Yojana. The plan includes cash transfers, measures on food security, free cooking gas to the poor, and insurance cover of ₹50 lakh to healthcare workers. The much-awaited (and delayed) stimulus package constituting about 0.8 per cent of FY20 GDP (PM Kisan, though, is part of the Budget) not only fails to address the urgent needs of smaller businesses, but also pales in comparison with the massive measures taken by other governments world over.

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Data put out by IMF (policy tracker) that summarises key economic responses across the globe, as of March 24, suggest that India is way behind the curve on both fiscal and monetary policy measures compared to other nations. India’s 21-day nationwide lockdown, however, is one of the more stringent containment measures.

Falling short

The lockdown, which has impacted the movement of goods and people across States, has already led to shortages in food and vegetables. With banks also planning to close most branches, there could be more pain for the common man in the coming weeks. In light of this, the Centre’s relief package offers only little respite to the poor. For instance, over and above the 5 kg of rice/wheat that is already given, another 5 kg per person will be given free through PDS.

Given the restrictions in place, there could be logistics and implementation issues. Cash is the need of the hour for the poor who have been hit hard by the three-week lockdown.

While the Centre has announced cash transfer to Jan Dhan accounts held by women, it only covers half the beneficiaries under Jan Dhan. The payment of ₹2,000 under PM Kisan is only front-loading the benefit already set aside in the Budget.

Also, the increase in daily wages under MGNREGS, from ₹182 to ₹202, allowing EPF withdrawal for organised sector workers and doubling the collateral-free loan limit to ₹20 lakh to self-help groups, barely scratch the surface in addressing the Covid-19 impact on the poor sections. The plan offers no relief for small businesses, which is a huge disappointment.

What others have done

Several countries have announced massive stimulus packages to tackle the crisis. For instance, in the US, an $8.3-billion Coronavirus Preparedness and Response Supplemental Appropriations Act and a $104-billion Families First Coronavirus Response Act (together 0.5 per cent of GDP) have been announced for healthcare, sick leave, small business loans, and international assistance. A $2-trillion (around 10 per cent GDP) package has also been passed by the Senate.

In China, an estimated RMB 1.3 trillion (or 1.2 per cent of GDP) of fiscal measures have been approved. These include spending on epidemic prevention, production of medical equipment, accelerated disbursement of unemployment insurance and tax relief, and waived social security contributions.

In Italy, the government has adopted a €25-billion (1.4 per cent of GDP) emergency package, including measures to preserve jobs and support income of laid-off workers and measures to support credit supply aimed at unlocking about €350 billion (20 per cent of GDP) of liquidity for businesses and households, among others.

In Indonesia, the government has announced two fiscal stimulus packages amounting to 33.2 trillion rupiah (about 0.2 per cent of GDP).

This first package comprises support to the tourism sector (tax cuts and discounts on airplane tickets and jet fuel) and to low-income households. The second package includes income tax exemptions to workers in the industrial sector and support to businesses through delayed payment of income tax.

In Brazil, the authorities have announced a temporary income support to vulnerable households, temporary tax breaks and credit lines for firms with the aim of protecting employment, among other measures.

In India, the government had earlier announced ₹15,000 crore (about 0.1 per cent of GDP) for health infrastructure. Some stimulus measures have been announced at the State level, the largest a ₹20,000-crore package in Kerala (2.5 per cent of the state GDP), which includes some direct transfers to poor households. At the national level, several measures to ease the tax compliance burden across a range of sectors were announced earlier.

Including the ₹1.7-lakh-crore relief package announced on Thursday, measures taken by the government clearly fall short of those taken by other countries — both in terms of the quantum and extent of benefit, particularly to daily-wage earners, migrant workers and small businesses.

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Weak response

On the monetary policy front, too, India has been way behind the curve. After lowering federal funds rate by 150 bps, the US Federal Reserve went full throttle on Monday, announcing massive emergency measures — unlimited bond-buying programme, new credit facilities and a Main Street Business Lending Program to support small- and medium-sized businesses (SMBs).

The credit facilities — for new bond and loan issuance to provide liquidity for outstanding corporate bonds and support the flow of credit to consumers and businesses — will be provided by special purpose vehicles (SPVs). The Department of the Treasury, using the Exchange Stabilisation Fund (ESF), will make an equity investment ($30 billion) in the SPVs, which will have a multiplier effect, providing $300 billion in new financing.

The Bank of England reduced the bank rate by 65 basis points, expanding the central bank’s holding of UK government bonds and non-financial corporate bonds by £200 billion. The ECB, aside from additional asset purchases of €120 billion until 2020-end, also announced an additional €750-billion asset purchase programme of private and public sector securities, among other measures.

In India, the RBI has so far provided additional liquidity through long-term repos and open market operations (OMO). Given that the banking system is in doldrums, providing liquidity alone will not suffice. A sharp cut in the repo rate, unlimited OMO programme and a targeted credit facility for affected sectors and small businesses (like the Fed measure) will be imperative.