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| ANNOUNCEMENT FOR CONSOLATION | | | KANCHAN BASU
Now that the details about the release of the Rs. 20 lakh crore packages are complete, several questions arise. While the government claims this is 10% of the Gross Domestic Product (G.D.P.), the exact proportion of the stimulus, the impact of announcements on vulnerable sections of the population and sectors in distress, and whether the package is sufficient to revive the economy, merits critical scrutiny.
Broken down, the direct, visible and quantifiable fiscal injection may hover at Rs. 4 lakh crore, barely 2% of GDP, if that. The government’s figures accept that 50% of the Rs. 20 lakh crore figure amounts to monetary support, including loan facilitation and enhanced incentives to lend.
How much will farmers, migrant workers and daily wage workers get in their bank accounts, notwithstanding the food distribution and loan moratorium? What is the nature of fiscal incentives, tax reductions and statutory dues waiver to individuals and enterprises? Can micro, small and medium enterprises (MSMEs) expect an interest waiver to boost revenue?
These questions gain relevance because while real fiscal incentives, when given, will ease some burden, it is unlikely that they will alleviate the setbacks in consumption patterns which will take relatively longer to recuperate. The fundamental problem in the economy today is the lack of consumption and demand. People need money to use.
At least 200 million people may have lost job since the nation-wide lockdown was clamped on March 25, 2020, to curb the spread of COVID-19. Although the Centre for Monitoring the Indian Economy (C.M.I.E.) in its last report said that 122million Indians lost their jobs in April, 2020 pushing the country’s unemployment rate to a record high of 27.1 percent, the actual figure by May-end will be much higher taking into account the lockdown impact on the vast informal and unorganized sectors.
Indian workers are losing job everywhere – inside and outside the country. Lakhs of jobless migrant workers are homebound. Few can blame industries for mass layoffs. First of all, industries do not run business to benefit only their employees. Private sector companies are not operated like government departments or state-owned enterprises. They have to earn to pay for inputs, including labour. The delayed government action to fight COVID-19 and unplanned lockdown across the nation choking markets and movement of people and supplies are principally responsible for the massive job losses. Life is not going to be the same again even if lockdown is withdrawn anytime soon.
Large and medium industries will keep squeezing employment in keeping with market demand and profit-ability. The medium and small scale sectors will go for more contract jobs linked strictly with a particular business. The lockdown affected everyone. Unfortunately, the government did not consult
social and industry bodies before taking such a major decision, unilaterally. Everyone caught unprepared. The latest round of the government’s bailout package, involving an unbelievably large sum of Rs 20 lakh crore, is unlikely to change the employment situation. The amount is far too large to repose public trust. Most opposition states and their leaders have trashed the package. Where will this vast amount come from? What are the sources of such a huge fund? Will the fund be disbursed by the government? After all, it has no budget sanction.
The amount is larger than the expected total budget receipts for 2020-21, following the lockdown and its possible impact on the economy and the government’s income. The union budget for 2020-21, announced on February 1, 2020, more than seven weeks before the declaration of lockdown, made a revised estimate of receipts for 2019-20 at Rs 19.32 lakh crore. The government’s total expenditure for the last financial year was revised upward at Rs 26.99 lakh crore. Of course, the budgeting exercise, this fiscal, could not visualize the import of already spreading Corona virus, which was detected in Wuhan as early as in December 2019. By January 2020, it took an epidemic form and soon turned pandemic. However, the government of India took it easy almost until the middle of March 2020. While declaring the national lockdown on March 25, it did not officially revisit its economic impact on the budget for 2019-20 and, more importantly, for 2020-21. The government’s income is expected to have fallen sharply even as the expenditure may have vastly increased.
Paradoxically, the massive bailout fund doesn’t exist physically. A very large part of the financial package is rather virtual than real. This will only create pressure on the financially stressed banking system with the government taking no responsibility for the consequences. The incentives are largely designed to help MSMEs to get back on their feet. Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnovers will be generally eligible for more loans. Will that protect the old jobs or create new ones? Most unlikely. If revised official estimates of GDP growth this year is a bare one percent, the virtual investments will neither protect, nor create jobs. Ironically, while presenting this year’s budget, the Finance Minister spoke about the need to ensure that scarce public resources are spent optimally.
Revised fiscal deficit estimates in the 2019-20 budget was3.8 per cent though it must have far exceeded at the end of March 31, 2020. There is no point in guessing at this stage the possible fiscal deficit at the end of 2020-21. The current year’s budget has targeted a net market borrowing of Rs 5.36 lakh crore. The bailout package appears to be best imaginary. It will neither benefit the economy nor its growing population of unemployed. If employment does not grow, income and demand will not grow. As a result, the economy will not grow. The jobless millions need government financial support until they are back to work. There is no provision for the jobless.
With lakhs of migrant workers desperately trying to return home, the prospect of employment in their job-starved home states look remote. There is nothing in the bailout package to protect their livelihood now or soon.
Scenes of hapless migrant workers, particularly daily-wages earners, fleeing cities on foot to return to their villages, filled Tele Vision screens and newspapers for most of April to middle of June, 2020. Informal jobs, which employ 80 percent of the adult population, were the first to be hit by the lockdown. The post-lockdown job scene appears to be even more difficult. The practice of issuing pink-slips is going to be routine in private companies. The economy is likely to witness a tsunami of job losses for employees who don’t have a regular salary or those without a written contract. The current labour market crunch can easily turn into a nightmare. Many fear the possibility of social unrest. It may be the time that the government comes out with a real-time bailout package for the jobless.
The majority of the schemes must therefore be linked with direct consumption of goods and services. But the inherent dangers - savings and leakages – must be avoided. All incentives must be employment – and fixed-cost-oriented. Millions of people are expected to be jobless and putting them back to work and supporting them in the interim is critical.
For this, we need equitable distribution and verification of the delivery to the intended class. Income-based distribution has to take place by payment of funds into the ‘Jan Dhan’ accounts. In this, paying progressively higher stimulus to lower income groups is crucial. The Marxian creed “from each according to his ability, to each according to his needs” is apt at such times.
But this has not been done. Instead, the government has come up with a set of measures. Let us examine these. The efficacy of collateral-free loans of up to Rs 3 lakh crore or government guarantees is questionable when it comes to those units which are reeling under debt. They will remain liabilities in the books, liable to be repaid, and can, thus, hardly be termed as part of the fiscal stimulus.
The government’s well-intentioned policy of procurement below Rs 200 corore without global tendering, as part of a nationalist self-reliant India, may raise legal eyebrows as being violative of the World Trade Organization norms and may have a deleterious effect in attracting reciprocal ‘Foreign Direct Investment’ (F.D.I.).
There can no longer be an indecisiveness regarding the fiscal deficit. The Fiscal Responsibility and Budget Management Act. 2003, should be amended to permit a 2% violation and, if necessary, money should be printed for genuine fiscal injections to targeted sectoral victims. These are not normal times and fiscal prudence is not a principle cast in stone. Flexibility and innovation pro-portionate to the danger are needed. War is not won by stereotyped, textbook responses and Covid-19 is no less than a war.
In India, there is always a huge risk of leakages and misappropriation. A part from targeted mechanisms such as direct benefit transfer and Aadhaar, special task forces comprising private sector, lawmakers, economists, accountants and investigators must police disbursal through State schemes. The courts will have to remain vigilant, even though as instruments of last resort, beset as they are with inherent delays endemic to the system.
Cooperative federalism during pandemic emergencies must be reconfigured. How much support state governments receive in the form of fiscal support, notwithstanding their political affiliations, requires political collaboration and maturity which seems to be lacking at the present time. While everybody realizes that all cannot be done at once, taking big, clear and concrete steps in the right direction is the way forward. The government’s motto – ‘sabka saath, sabka vikas’ – needs to be tied to the former Prime Minister of Britain, Lloyd George’s famous admonishment:”Don’t be afraid to take a big step if one is indicated. You can’t cross a chasm in two small jumps.” |
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