The Finance Minister’s package announced on Thursday must be viewed as the second in the series of measures to be announced by the government to address the negative impact of the Covid-19 virus. The first announced was in the area of compliances regarding time lines, which were relaxed by three months to June. The same is being done now for the poor in what can be called the second package, which is again looking at a three-month horizon.
The outlay is to be Rs 1.7 trillion - around 0.75% of gross domestic product (GDP) and can be taken to be a fiscal stimulus. The variety of stimulus is, however, different as it is not for reinvigorating the economy but sustaining human life, which is the important goal given the disruption caused by the 21-day shutdown where several people have been displaced.
The package looks at cash transfers as well as delivery of goods, which is good for the poor. What has not been mentioned is whether this will be part of the Budget allocations, or beyond the same. If it is additional spending, it can trigger a slippage in fiscal deficit under constant conditions. The 5 kg scheme of food grains per month for three months is to be given free to every poor individual. This will impact 800 million people and would involve around 12 million tonnes of food grain (15 kgs for 800 million over three months), which is not a challenge given the stocks with FCI. Also, 1 kg per family would involve around 480,000 tonnes (3kgs for 160 million families). Pulses distribution, however, will be a challenge as there is no machinery present to collect them unlike rice and wheat which is procured by the FCI.
The challenge will be in delivery of the same which is always a challenge as the last mile connectivity tends to be weak. Further, the package has spoken of increasing the NREGA wage by Rs 20 from Rs 182 to Rs 202, which on the basis of 100 days of labour can give workers Rs 2,000 more. Here, too, the government has to strive to create projects and get people to work as experience shows that the average utilisation of the scheme has been around 50 days. But to the extent that the provision is there, agricultural workers would have to be sensitised to the same and ensure they make use of the scheme. The states have to pitch in with appropriate projects.
The package also includes insurance of Rs 50 lakh for all the healthcare workers who are involved in combating the disease which is very useful given the uncertainty of the disease and its impact. There are other announcements concerning reaching out to women, elderly, destitute etc, which will work to alleviate their suffering. The “Kisan” scheme in the Budget that gave Rs 6,000 per annum to farmers would be released with the first tranche of Rs 2000, is not an additional allocation but a frontloading of an already existing scheme.
The FM has not committed on whether there will be more schemes being announced by the government for corporate India that face a series of challenges. The present announcements have been directed to the people affected the most in terms of loss of livelihood, and hence, has taken front stage. Business, too, would be expecting something from the FM given that across the governments across the world have been announcing stimulus packages that go beyond 10 per cent of GDP to resuscitate their economies. There would be expectations of something more to be announced probably this weekend or early next week before the start of the new financial year.
Madan Sabnavis is chief economist at CARE Ratings. Views are personal.