Govt.’s Relief Packages: Wild Claims, Hot Air

July 29, 2020

[This is the fifth article in the series on the ongoing economic crisis in India]

The government has been tom-tomming its ‘Rs 20 lakh crore’ economic relief package to tackle the slowdown in the economy ostensibly caused by the coronavirus epidemic and the consequent lockdowns. As is usual with the Modi government, every part of this claim fails to stand up to scrutiny. In reality, the money the government will spend on this package is nowhere near Rs 20 lakh crore, but closer to Rs 2 lakh crore, which makes it barely 1 per cent of the country’s gross domestic product (GDP) and not 10 per cent as claimed. Second, the manner in which the package has been designed means that it fails to address the real problem facing the economy – a huge slump in demand – and therefore to provide the relief required. And finally, the slowdown has been aggravated by the epidemic but started well before anybody had heard of the virus.

To start with the last of these three major flaws in the government’s claim, we need go no further than the government’s own estimates of growth in 2019-20. The official estimate is that the Indian economy grew by 4.2 per cent in 2019-20, the lowest growth rate in the last 11 years, that is, since the global financial meltdown that began in late 2008. The growth rate in the last quarter is estimated at an even more abysmal 3.1 per cent. In fact, so obvious had the slowdown become that after months of remaining in denial, the government itself came out with a relief package back in September last year. It is another matter, the cornerstone of that package, a cut in corporate taxes worth Rs 1.45 lakh crore and some ‘ease of doing business’ tinkering revealed just how clueless the government was about what afflicts the economy and also how committed it is to doing its cronies a bit of good at the slightest opportunity. It clearly failed to recognize that what was needed was measures to boost slumping demand.

Loans Not Spending

The same flawed approach manifests itself in most of the measures announced starting in end-March this year. The official claim on the size of the relief package includes various liquidity measures announced by the Reserve Bank of India (RBI) that total up to just over Rs 8 lakh crore or about 40 per cent of the total. This does not involve any money being spent by the government and is aimed at making credit more freely available. But which of the target audience for whom this is meant, essentially the corporate sector, is borrowing in this economic climate?

Apart from the various RBI measures, the Atmanirbhar Bharat Abhiyan also contains a slew of ‘relief’ measures for medium, small and micro enterprises (MSMEs), for farmers and for street vendors, aimed at providing them easy credit. Yet again, it is not clear what purpose this will serve, apart from allowing the government to make the package look bigger without having to spend. The Atmanirbhar Bharat Abhiyan also listed, as in the pre-Covid packages, ‘reforms’ that were effectively using the crisis to push an agenda of privatization that can by no stretch of imagination be considered relief for the economy.

Repackaged Spending

The real meat of the much-touted Abhiyan, at least as far as providing relief to a beleaguered economy and people in dire straits is concerned, boils down then to the PM Garib Kalyan Yojana (PMGKY). This was announced in late March as a Rs 1.7 lakh crore package for immediate relief to the poor, but as always with this government, the claim was significantly window dressed. For instance, it included an instalment of Rs 2,000 each to 9 crore farmers under the PM Kisan scheme, totaling up to Rs 18,000 crore. But this instalment would have been paid to them anyway under the scheme and therefore was in no sense any additional relief. Also, the original announcement of PM Kisan had said it would cover 14 crore farmers, which means 5 crore farmers who should have been eligible by the government’s own reckoning have been quietly shunted out.

Similarly, the Rs 40,000 crore extra grandly announced for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is really a case of passing off a necessity as a virtue. Let us not forget that the scheme is meant to guarantee 100 days of employment a year for every household that demands it and not just tailor its provisioning to what the Finance Minister decides should be allocated to the scheme. Data from the scheme’s website shows that in April, 25 lakh households that demanded work did not get it, in May that number was around 30 lakh and in June close to 60 lakh. True, households demanding work and not getting it is nothing new in the scheme, but at a time when the need is so dire, its impact is much worse. Also, the average number of days worked per person in the current financial year is a mere 20. When you see that in the context of the fact that many of those now seeking work under the scheme have lost regular better paying employment in cities, to call this ‘relief’ seems cruel. The Finance Minister also made much of the fact that the average daily wage rate under the scheme would go up to Rs 202 from Rs 182. The data shows the actual average so far this financial year has been Rs 197. But more importantly, the union government’s own minimum wage notification puts the daily rate for unskilled agricultural labour in lowest category at Rs 362 and a panel set up by the labour ministry had recommended Rs 375 per day as the national minimum floor. Is Rs 202 a day really something to boast about?

Excluding Many Needy People

Another big announcement was that 81 crore families covered under the National Food Security Act would be given 5 kg of grain extra per month, initially for the April-June period and now extended to November. Here again, there are several catches. First, the number of beneficiaries under the Act – stipulated as 75 per cent of the rural population and 50 per cent of the urban population – ought to have been 89.5 crore at the current population levels. Instead, it has remained frozen at 81 crore using the 2011 population figures. So, that’s 8 crore people denied their rights. Second, the actual amount of foodgrain distributed under this ‘relief’ measure from April to June has been just over 100 lakh tones instead of the 129 lakh tones that should have been distributed even by the outdated population count. And some states with large migrant populations have done particularly badly. Take Uttarakhand and Madhya Pradesh, both BJP ruled and with very large populations of migrants who’ve had to flee cities during the lockdown. Uttarkhand had distributed just over 50,000 tonnes against its allocation of nearly 93,000 tonnes for April-June. That’s just 54 per cent. Madhya Pradesh had distributed 6.1 lakh tonnes or 74 per cent of its allocation of 8.2 lakh tonnes.

The decision to transfer Rs 500 each to the Jan Dhan accounts held by women also betrayed the government’s obsession with saving money while sounding grand. The fact is that of the 39 crore beneficiaries under the scheme, only 21 crore or barely half are women. Why exclude the rest? Further confirming the tokenism inherent in the move, this was not extended beyond June unlike the food grain scheme.

In short, the government has stuck to the Modi playbook – make it sound big, but cost little; add measures already announced to make the package seem bigger than it is; what matters is the optics not the real impact of what you are doing. While this may serve the government’s immediate political calculations, it does little if not nothing to arrest the downward spiral of the economy. The mountains of grain lying in FCI godowns could have been used to feed the hungry. The government could have put more money into people’s hands if it had not been so obsessed about the fiscal deficit. Those are steps that would have genuinely provided relief. But who can be bothered to actually do something meaningful when looking like you are doing something is so much easier and cheaper? Certainly not Mr Modi or his government.