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Insights into Editorial: Economic package math: It’s 10% of GDP but about half is already factored in

atmanirbhar

Context:

The Rs 20-lakh crore package announced by Prime Minister Narendra Modi sounds big but will burn only a small hole in the government’s finances.

A large part of it, or as much as Rs 8.04 lakh crore, is additional liquidity injected into the system by the Reserve Bank of India through various measures in February, March and April.

Economic package to boost the Indian Economy:

Add to this the Rs 1.7 lakh crore fiscal package announced by Finance Minister Nirmala Sitharaman on March 27.

The balance of the economic package, details of which are not yet known, then stands at Rs 10.26 lakh crore.

Sources familiar with discussions within the government said the fiscal outgo may not be more than Rs 4.2 lakh crore during the year, taking cues from the revised borrowing calendar announced just three days back.

On May 9, the government revised its estimated market borrowings to Rs 12 lakh crore from Rs 7.8 lakh crore as announced in Budget 2020-21. In a way, this puts a ceiling to the size of the fiscal package at 2.1 per cent of the GDP (Rs 4.2 lakh crore).

New Package: Boosting economic cycle by injecting Fiscal Stimulus:

The package is predicated to make the Indian economy self-reliant by leveraging our inherent strengths of demographics, technological skills and domestic demand by building infrastructure and robust supply chains that would give a boost the Make in India programme.

  1. Finance Minister has announced collateral-free loans for MSME up to Rs 3 lakh crore.
  2. For the stressed MSMEs, Ministry further announced Rs 20,000 crore liquidity to benefit around 2 lakh MSMEs. Stressed and NPA MSMEs will be eligible for this facility.
  3. It has also decided to infuse capital of Rs 50,000 cr in MSMEs for their expansion. FM Sitharaman has also changed the definition of MSMEs which will allow them to still get the facilities even with higher investment in them.
  4. The government procurement, tenders up to Rs 200 crores will not be global tenders. Besides, liquidity of Rs 2,500 crore EPF support for business and workers for 3 more months has been announced due to which over 72 lakh employees are expected to be benefitted.
  5. For the NBFCs, FM Sitharaman has announced a special liquidity scheme and Rs 45,000 crore as a partial credit guarantee scheme.
  6. The government has also set aside Rs 90,000 for DISCOMS against receivables through state-issued guarantees, to help clear GENCOS dues to reduce their stress.
  7. While the Rs 1 lakh crore helps the government in showing a big economic package, the actual cost to the exchequer will probably be a couple of thousand crores of rupees.
  8. Further, the government can also recapitalise banks, helping their capital adequacy.
  9. Again, we just have to account for the interest to be paid on the recapitalisation bonds, which also does not amount to any substantial outgo.

However, not only fiscally responsible but also specifically aimed to connect weaker dots in economy:

  1. One of the most astute stimulus package series-1 has been announced by our Finance Minister which is not only fiscally responsible but also specifically aims to connect the weaker dots in the economy. This is to quicken India’s revival as soon as the lockdown eases.
  2. Although late, the Government indeed came out with a superior proposition as compared to developed countries when seen in terms of specific targeting and effectiveness thereof.
  3. Infrastructure sector could be a game-changer acting as a catalyst for the government to not just jump start the economy but also to lead the economy towards a sustained long-term growth.
  4. Fresh injection of Rs. 90,000 Cr into DISCOMs would certainly lead to financially de-stress them and in turn improve the liquidity for Power Generation companies.
  5. This was long due and hopefully would lead to end consumers getting benefited in terms of cheaper tariffs, however that is likely to happen on a medium to long term.
  6. Going forward one needs to ensure that Developers and the investors get a clear understanding and the precise details of the upcoming projects to start preparing for it sooner than later.
  7. The extension of up to 6 months announced both for ongoing Construction contracts and concessions awarded on PPP model is a welcome move, however Contracting community is awaiting to hear on the outcome of force majeure provisions triggered during the COVID period on the Government contracts.
  8. While the intent of the Government demonstrated by augmenting scope of the grand NIP is both ambitious and commendable it is the roll out plan that really matters.

This economic package is for our cottage industry, home industry, our small-scale industry, our MSME, which is a source of livelihood for millions of people, which is the strong foundation of our resolve for a self-reliant India.

This economic package is for that labourer of the country, for the farmers of the country who are working day and night for the countrymen in every situation, every season.

This economic package is for the middle class of our country, which pays taxes honestly and contributes to the development of the country. This economic package is for Indian industries, which are determined to give a boost to the economic potential of India.

Starting tomorrow, over the next few days, the Finance Minister will give you detailed information about this economic package inspired by the ‘Self-reliant India campaign’.

Conclusion:

The PM reminded citizens that one has to live with corona for some time. “But it is important to ensure that our life does not revolve only around it.” PM said people must follow social distancing protocols strictly.

India’s response has so far been tepid compared to other key nations and thus the catch-up is welcome and is also the need of the hour.

PM Narendra Modi sought to turn the unprecedented coronavirus crisis into an opportunity of a lifetime for India.

He underlined five pillars of a self-reliant India — economy, infrastructure, demography, system, and demand.

Besides, the Prime Minister strongly suggested to not only prefer using the local products but also publicise it with pride, in his words, to become ‘vocal for local’.
 


Insights Current Affairs Analysis (ICAN) by IAS Topper