Atmanirbhar Abhiyan Package

 The COVID-19 pandemic and the prolonged national lockdown

have brought the Indian economy to a standstill.
 The various announcements made by the Finance Minister
concluded the relief measures undertaken in five tranches by the
government as part of the economic package announced by PM Modi for
‘Atmanirbhar Bharat’.
 Impacts of COVID-19 on Economy: Broad Picture

Given an uncertain future for the rest of the year, it can be clearly seen
that the Indian economy is contracting.

 That is, it will produce less in 2020-21 than it did in 2019-20. This
means the Gross Value Added across sectors — agriculture, industry and
services — will fall.
 As incomes fall, three things will happen.
 One, individuals will cut down their expenditure. In particular, all
discretionary expenditure — be it an additional pack of cigarettes or a
new car or a house — will come down sharply.
 Two, seeing overall demand fall, businesses, which were already
not investing, will likely postpone their investments further.
 Three, the government revenues will take a massive hit. This
means that if the government wants to maintain its level of fiscal deficit
(the gap between what it earns as revenues and what it spends), it will
have to cut its overall expenditure this year.
 These three types of “expenditures” — by individuals, businesses
and government — essentially make up the GDP of India.
 There is a fourth component called net exports (that is, the net of
exports and imports), but with the global demand plummeting as well,
this too is unlikely to help matters.

Atmanirbhar Bharat: With a special package

 PM has announced a special economic package and gave a clarion
call for Self-reliant India.
 This package, taken together with earlier announcements by the
government during COVID crisis and decisions taken by RBI, is to the
tune of Rs 20 lakh crore, which is equivalent to almost 10% of India’s
GDP.
 The package will also focus on land, labour, liquidity and laws. It
will cater to various sections including cottage industry, MSMEs,
labourers, middle class, and industries, among others.

Complete details of the package

First Tranche: Rs 5,94,550 crore

 The first set of relief measures announced by Nirmala Sitharaman
focused on enabling the Indian economy’s backbone – MSMEs that
employ around 11 crore people and have a GDP share of approximately
29 per cent.
 Out of the 16 announcements made by the minister, six were
dedicated to the MSME segment to infuse liquidity.
 This included Rs 3 lakh crore collateral-free loans and Rs 50,000
crore equity infusions for MSMEs through Fund of Funds.
 Liquidity relief measures worth Rs 30,000 crore were also
announced for NBFCs, HFCs etc. and Rs 90,000 crore for power
distribution companies.
 The minister also advised states and regulatory authorities for
extending the registration and completion date of real estate projects
under RERA to de-stress developers and ensure completion of projects
for home buyers to get their booked houses on time.

Second tranche – Rs 3,10,000 crore

 FM’s second tranche of measures catered to migrant workers and
street vendors.
 The minister introduced ‘one nation one ration card’ to allow
migrant workers to buy ration from any depot in the country.
 A special credit facility of Rs 5,000 crore was announced to
support around 50 lakh street vendors who will have access to an initial
Rs 10,000 working capital.
 The minister also said that close to Rs 2 lakh crore will be given to
farmers through Kisan credit cards while 2.5 crore farmers, including
fishermen and animal husbandry farmers, would be able to get
institutional credit at a concessional rate.
 The government allowed states to fund the food and shelter
facilities to migrant workers from the disaster response fund that would
cost Rs 11,000 crore to the centre.

Third tranche – Rs 1, 50,000 crore

 The third tranche of the measures worth Rs 1.5 lakh crore focused
on the agriculture and allied sectors including dairy, animal husbandry
and fisheries as the government announced steps to strengthen the overall
farm sector.
 Sitharaman announced Rs 1 lakh crore agriculture infrastructure
funds for farm-gate infrastructure including using it for setting up cold
chains and post-harvest management infrastructure.
 Other key announcements made by the minister included Rs
20,000 to be provided to fishermen through PM Matsya Sampada Yojana,
and Rs 10,000 crore to formalize micro food enterprises.
 Rs 4,000 crore for herbal cultivation, a Rs 15,000 crore Animal
Husbandry Infrastructure Development Fund, Rs 500 crore for
bee-keeping related infrastructure development were other packages
announced by the minister.

Fourth and fifth tranches – Rs 48,100 crore

 The fourth instalment comprised of reforms for sectors including
coal, minerals, defence production, air space management, airports, MRO,
distribution companies in UTs, space sector, and atomic energy.
 She announced easing utilization of the Indian air space to reduce
air travel cost.
 The minister also announced the commercial mining in the coal
sector and privatizing discoms in metros to streamline their functions for
better accountability.
 The minister allocated an additional Rs 40,000 crore for the
MGNREGA for job creation in India’s hinterland. The government had
earlier allocated Rs 61,000 crore in the budget for this financial year.
 She also announced the formulation of a new Public Sector
Enterprises Policy that would allow for consolidation of the PSU firms in
strategic sectors.
 Each sector would have up to four such firms while state-owned
enterprises will be privatized.

Is this a new package?

 The PM did not give the details, but he specified that this
calculation of Rs 20 lakh crore includes what the government has already
announced and the steps taken by the RBI.
 This means the total amount of additional money — that is over
and above what the government would have spent even in the absence of
 a COVID crisis — will not be Rs 20 lakh crore. It would be substantially
less.
 PM has included the actions of RBI, India’s central bank, as part of
the government’s “fiscal” package, even though only the government
controls the fiscal policy and not the RBI (which controls the ‘monetary’
policy).
 A rough estimate suggests that the RBI’s decisions have provided
additional liquidity of Rs 5-6 lakh crore since the start of the Covid-19
crisis.

What is the approach adopted?

 The measures taken up are largely in line of –

1) Giving a strong supply-side push by boosting the availability of capital

on easy terms

2) Keeping income and wage support schemes to the minimum

3) Empowering constituencies ranging from farmers and workers to

businesses

 Above all, the government seems to be keen on keeping the

damage to the fiscal as low as possible.
 The fiscal impact of the Rs. 20-lakh crore packages is estimated by
economists at between 2-3% of GDP.
 This includes withdrawals from provisions already made in the
Budget for this fiscal.

Idea behind the Atmanirbhar

 The pillar on which the package rests is liquidity support so that

businesses can be revived. This, in turn, is expected to set the economic
cycle back in motion.
 The option of a demand-side stimulus through a resort to deficit
financing seems to be reserved for a future date.
 This could be in case if the infection does not subside or a second
wave begins prompting another lockdown.

Significance of self-efficiency and self-reliance

 Global supply chains have been disrupted and all nations have
become preoccupied with meeting their own challenges.
 The importance of local manufacturing, local market and local
supply chains was realized during the pandemic time. All our demands
during the crisis were met ‘locally’.
 Now, it was a ripe time to be vocal about the local products and
help these local products become global.
 For instance, the supply chain and global manufacturing controlled
by Chinese economy got disrupted due to COVID. Thus there is a need to
become self-reliant for essential goods and service like N95 masks,
ventilators etc.
 Restrictions on travel and mobility have meant tight controls over
the flow of goods, services and labour across international, state and
district borders.
 The international economic order is changing; the possibility of
greater economic cooperation is diminishing. So the emphasis should be
on the need to leverage India’s inner potential.
 The Self-Reliance neither signifies any exclusionary or isolationist
strategies but involves the creation of a helping hand to the whole world.
 This is neither an economic nationalism or a rejection of
globalization, but a call for a new form of globalization — from
profit-driven to people-centric which takes into account the needs of
labours, vulnerable and have nots.

Positives of the package

In the numbers provided, the government has tried to project a ‘maximum

bang for minimum buck’ approach.
 Most support measures have translated into forms of regulatory relief,
broader liquidity support or are reflected in its contingent liabilities,
rather than in the form of explicit budgetary support.

It seems the Union government has very craftily used the COVID-19
pandemic crisis to plough through long pending, deep-rooted structural
reforms. That should be welcomed.

Other welcome moves

 The government has done well in increasing the budget for

MGNREGA by two-thirds, adding another Rs. 40,000 crore.
 With migrants now returning to their villages, MGNREGA can be
leveraged to keep them occupied with meaningful work.
 The demand of States for higher borrowings limit has also been
granted but with clear reform milestones that they have to meet.
 The government has also used the opportunity to unleash some
much-needed reforms in agriculture marketing.
 The measures also include –

1) opening up more sectors for private participation

2) enhancing foreign direct investment in defence

3) corporatizing the monolith Ordnance Factory Board, and so on

On contract farming

 ‘The Centre is considering introducing a law on contract farming

under the Contract Act of 1872 to enable farmers to directly engage with
processors, aggregators, large retailers and exporters in a fair and
transparent manner.
 It would allow private players to invest in inputs and technology in
the agricultural sector.

Criticisms of the package

 Yet, many have openly questioned the ability of this economic

package to either provide adequate immediate relief to the most distressed
sections of the economy or indeed stem the rapid decline in India’s GDP
growth.
 There are multiple fronts where this package is seen as inadequate.
Let us discuss that-
 1) Old demand met with conditions

 The package contains several generic announcements which should

ideally, has been a part of a normal economic agenda.
 The industry has been demanding a package to the tune of 7% to
8% of India’s GDP of over $2.8 trillion since a long time.
 There was nothing unusual given that similar packages have been
announced by other countries to mitigate the damage done to their
economies.
 So, a package of the size of almost 10% of the GDP was offered
like a masterstroke but without coming clear on the source of funding and
oversight provision.

2) Bluff over MSMEs

 Since MSMEs have been the hardest hit, being the main employers
of industrial workers, their plight is grim.
 It is small businesses that give traction to entrepreneurial activities
in the unorganised sector where migrants from rural India mostly work.
 The redefinition of MSMEs has been long-pending and cannot be
called a reform.
 There is nothing for the States to look forward to that can serve the
immediate purpose.

3) No stakeholders consulted

 Ideally, after the first round of an insufficient package, the

government should have begun consultations with parliamentarians,
states and industry representatives to prepare a well-thought-out relief
package.
 States which have been at the forefront of the war against
COVID-19 have not been given the required funds to help them cope
with the public health emergency.
 They have however shouldered the high influx of returning migrant
labourers from industrial locations.

4) Job losses unaddressed

 India’s great middle class, which is also suffering, has found no

solace either; nor is it likely that they will get anything substantial from
this package.
 A large number of workers in the organised sector are facing heavy
pay cuts, job losses, a sharp fall in income, and uncertainty.
 The expansion of MGNREGA, has a negative aspect, as it could
impact labour availability, as rural migrants may not rush back for jobs
(construction, transport most impacted).

5) Farmers’ plight ignored

 The package nowhere mentions resuming normal procurement

operations.
 Farmers are finding it difficult to get the minimum support price
(MSP) for their produce; a majority of them are in debt and face many
obstacles.
 Many APMCs are shut with no signs to begin normal operations.
Middlemen and Adhatiyas are plunging in to purchase the produces far
below the MSP.

6) Migrant workers ignored

 The first national lockdown was announced in the most dramatic

manner late in the evening and without adequate notice.
 This created panic among migrants and painful displacement began
which could have been avoided by offering the industry a timely financial
package on the eleventh hour.
 Economic desperation might leave poor workers with no choice but
to return to work. But many of them are truly worried about getting
infected.
 Though Shramik Express trains were flagged off from certain
destinations to take back migrant workers to their home States, but there
was another shock — the charges levied by the Indian Railways.
 Now India faces the loss of lives and livelihoods against the
backdrop of the ruling dispensation’s apathy towards the poor and the
disadvantaged.

7) Healthcare needs more attention

 Our healthcare delivery system in most States is extremely fragile.

 One wonders, for instance, whether Bihar can handle the
consequences if the virus begins to spread with the return of millions of
migrant workers back to the State.
 Many other States also face a similar plight given the poor state of
primary healthcare facilities.
 The pandemic has exposed a hard truth: most private healthcare
providers seem to be incapable of and unwilling to help even during a
national crisis.
 8) Undue pressure on Banks

 Indian MSMEs have little access to risk capital, and hence raise it
from banks, calling it loans. RBI has lent billions to banks to refinance
those loans.
 It will never get its money back. The FM has, for the first time,
showing some awareness of the problem.
 But the solution is weird. GoI will facilitate— whatever that means
— provision of Rs 20,000 crore as subordinate debt. That is debt that
does not have to be paid until all other loans have been repaid.
 In other words, banks will be asked to give loans with an informal
guarantee that they are gifts unless the bankrupt firm starts making huge
profits someday.

9) Broader reforms lack the spark

 India’s self-reliance package to match global stimulus numbers is

perhaps the driver for the claim of a large package (USD 280bn, 10% of
GDP).
 India does not have fiscal buffers hence a large fiscal stimulus
would have been a bold bet – as that could have impacted ratings and
currency, if not executed properly.
 Not much was discussed on land, labour reforms, tax
rationalization or on any coherent plan to invite foreign manufacturing.
 The government’s defence indigenization plan is not new and has
been poorly executed in the past and that is also the case with commercial
mining for coal.

10) Ignoring demand stimulus

 The problem with this approach is that there is now a desperate

need for demand stimulus; the government has focussed on supply-side
push.
 A strategy to drive consumption may have worked better under
prevailing conditions.
 The options could have been suspending GST for a couple of
months or at least cutting rates temporarily, combined with a liquidity
boost.

What needs to be done at this immediate hour?

Food and cash transfers first

 The immediate need is to provide free food and cash transfers to
those rendered incomeless.
 Putting money in the hands of the poor is the best stimulus to
economic revival, as it creates effective demand and in local markets.
 Hence, an immediate programme of food and cash transfers must
command the highest priority.

2) Revamp MGNREGA work

 Millions of migrant workers have endured immense hardships to

trudge back home, and are unlikely to return to towns in the foreseeable
future.
 Employment has to be provided to them where they are, for which
the MGNREGS must be expanded greatly and revamped with wage
arrears paid immediately.
 And permissible work must include not just agricultural and
construction work, but work in rural enterprises and in care activities too.
 The revamped MGNREGS could cover wage bills of rural
enterprises started by panchayats, along with those of existing rural
enterprises, until they can stand on their own feet.

3) The urban focus

 In urban areas, it was absolutely essential to revive the MSMEs.

 Simultaneously, the vast numbers of workers who have stayed on
in towns have to be provided with employment and income after our
proposed cash transfers run out.
 The best way to overcome both problems would be to introduce an
Urban Employment Guarantee Programme, to serve diverse groups of the
urban unemployed, including the educated unemployed.
 Urban local bodies must take charge of this programme and would
need to be revamped for this purpose.

4) The ‘care’ economy

 The pandemic has underscored the extreme importance of a public

health-care system, and the folly of privatization of essential services.
 The post-pandemic period must see significant increases in public
expenditure on education and health, especially primary and secondary
health including for the urban and rural poor.
 The “care economy” provides immense scope for increasing
employment. Vacancies in public employment, especially in such
activities, must be immediately filled.
 Anganwadi and Accredited Social Health Activists/workers who
provide essential services to the population, including during this
pandemic, are paid a pittance and treated with extreme unfairness.

5) Increasing revenue

 All the tasks mentioned in the package could be financed by

printing money. But in the medium term, public revenues must be
increased.
 This is not because there is a shortage of real resources which,
therefore, has to take from other existing uses through taxation.
 Rather, since much-unutilized capacity exists in the economy, the
shortage is not of real resources; the government has to just get command
over them.
 A combination of wealth and inheritance taxation and getting
multinational companies to pay the same effective rate as local companies
through a system of unitary taxation will garner substantial public
revenue.

6) Looping in foreign capital

 It would be argued that this might cause large financial outflows,

which the country can ill-afford.
 Contrarily, even foreign capital is more likely to be attracted to a
growing economy than one in sharp decline because of a lack of stimulus.
 Also, a fresh issue of special drawing rights by the IMF (which
India has surprisingly opposed along with the United States) would
provide additional external resources.

Conclusion

 The coronavirus disease pandemic has offered India a valuable

lesson on the importance of self-reliance and self-sufficiency that we
must aspire to attain the twin goals.
 Self-reliance will prepare the country for tough competition in the
global supply chain, and it is important that the country wins this
competition.
 It will not only increase efficiency in various sectors but also
ensure quality.
 In sum, the package has several notable features not all of which
are COVID-19 relief. But, the government has clearly refused to borrow
and spend more on boosting demand.
 If the strategy of boosting supply works, it is fine. However, if it
does not work on expected lines, the government will be faced with a
bigger problem down the line.

Way Forward

 Several bold reforms are needed to make the country self-reliant so

that the impact of crisis such as COVID can be negated in future.
 These reforms include supply chain reforms for agriculture,
rational tax system, simple and clear laws, capable human resource and a
strong financial system.
 These reforms will promote business, attract investment, and
further strengthen Make in India.
 Local Governments should be playing a key role in supporting the
government’s outreach in vast belts of rural India to spread awareness
about the coronavirus disease.
 Local governments can undertake door-to-door campaigns; stitched
masks; made hand sanitisers for local populations; and provided support
to the local administrative and security machinery in both providing basic
services to residents and enforcing the lockdown.