The government’s stimulus measures have been a mixed bag, with possibly more disappointments than meeting expectations, especially where people had expected direct sops to flow into the business accounts, interest waivers, etc.
Among notable announcements on Sunday – the fifth and final tranche – was to hike the borrowing limit for the states from 3 per cent to 5 per cent, which thankfully comes with performance riders. MNREGA scheme has been allocated an additional Rs 40,000 crore to facilitate migrants who have returned to their home states to secure livelihood. Though it’s beneficial to the migrants, most of whom would have been reduced to penury in their efforts of reverse migration, it will also delay their return resulting in labour shortage at various industrial hubs and construction sites.
The stimulus package which was meant to cushion the economy from Covid-19 hit would not be complete without a specific package for the root problem – which is the state of the health facilities. The Finance Minister announced that health sector reforms will be taken up and investments at the grass-root level will be ramped up through clinics and wellness centres, which would be prepared for future epidemics. All the districts will have infectious diseases block in their hospitals. However, since the quantum of allocation was not announced, we assume it’s more intent than an executable plan. The central government currently spends 1.3 per cent of gross domestic product (GDP) on health, which is among the lowest globally. The earlier plan was to increase this to 2.5 per cent by 2025, but now it seems that the target should be steeply increased and the time-lines be crashed.
The decriminalisation of Companies Act and ease of doing business are the small mercies bestowed on Corporate India. Seven compoundable offences to be dropped and five to be dealt with under an alternative framework is in line with The Companies (Amendment) Bill, 2020, so there is nothing new. However, the suspension of fresh insolvency proceedings up to one year would be beneficial for many businesses that would have otherwise fallen into that category due to Covid-19 related slowdown.
Public Sector Enterprise (PSE) Policy announced would open up opportunities for the private sector, which could also attract foreign investments where foreign direct investment (FDI) has been increased to 74 per cent earlier. This is one of the biggest signals given by the government about unshackling the economy and reducing controls.
One of the time-tested modes of pulling an economy out of distress is to increase spends on infrastructure. Somehow, this seems to be missing, though the government had announced in 2019 the intent to spend a substantial amount over the next five years. I would have expected front-loading of that in these announcements.
The government should have acted like a driver and not merely a facilitator to pull the economy out of the mess it is in. It seems convinced about Indian entrepreneurs’ ability of ‘Jugaad’, thus they only need a nudge to find their own way through the sludge. I expected Prime Minister Narendra Modi to act like a CEO, whose $5 trillion economy by 2025 dream is at risk, and that it should be achieved ‘by hook or by crook’, for which he would have to take a fiscal risk. While doling out the stimulus measures, we seem to have opted for a safer route, as we can always blame the shortfall on Covid-19.
Ambareesh Baliga is an independent market analyst. Views are his own.