‘ATMANIRBHAR BHARAT’ PART II: A STIMULUS TO ‘REMEMBER’!

The media was abuzz with the speculation that a ‘stimulus package’ was about to be unveiled anytime. The economy was stuttering and the PM, Narendra Modi, just HAD to do something. There was expectant excitement and a certain kind of buoyancy in the market. The PM’s supporters were tuning in for the big announcement. And then the PM began his speech. And then the speech got over.

There was no ‘stimulus’. This was on 25 Sep 17.

Fast forward almost three years and Modi announced an economic stimulus package worth Rs 20000000000000 lac crores (I actually forgot the number of zeros punched in). The announcement was such a blockbuster that some saw it as a celestial event. Foreign media too caught the strain and flashed it the world over.

Amul Topical on the PM’s ‘Atmanirbhar Bharat’ Speech

The PM’S pitch for a self reliant India with a stake in the Global Value Chains through its local industries made for more than prime time news. Backed by a humongous stimulus package at 10 % of the GDP or USD 266 billion, it was seen as Indian-ised version of ‘Noah’s Ark’ in the times of covid19.

To put in perspective as to what exactly was the import of the Modi announcement on 12 May ’20. The Nation was in the throes of a full blown and unprecedented economic meltdown laced with wage and job losses, business closures, revenue loss of 60 to 85 % and the spectre of hunger in vast swathes of the country – all in the midst of a raging pandemic.

In short, the most serious existential economic crisis in the history post Independence India was upon us. And then came along the ‘Noah’s Arc’.

Then began the slow and winding unveiling of the PM’s ‘stimulus package’ – the Atmanirbhar Bharat Abhiyan  – by the FM, Nirmala Sitharaman, and over the next five days the package was revealed.

The first tranche was aimed at the MSMEs, NBFCs and employees (less government) with 3.80 lac crore liquidity infusion for MSMEs, 75k crore credit line for NBFCs, liquidity relief of Rs 9350 crore through EPF support for employees, infusion of Rs 90k crore in Power distribution companies and reduction by 25% in rate of taxation for TDC and TCS.

The second tranche primarily dealt with migrants, street vendors, tribals and small and medium farmers and included provisions for affordable housing. There were allocations for free food for two months for 8cr migrants amounting to Rs 3.5k crores & loans to street vendors and interest subvention for loans upto Rs 50k.The ‘One Nation, One Ration Card’ was also unveiled.2.5lac crores was allocated for Agricultural credit & Rs 6k crore for employment generation for tribals through Compulsory Afforestation Funds.

The Third Tranche focussed upon the Agri sector and laid out 1 lac crore for development of agri infrastructure, 50k crores for promoting various agri sectors (fisheries, animal husbandry, bee keeping etc), Rs 13k crore for vaccination of livestocks.

Reforms in the sector were also ushered in by proposing amending of the Essential Commodities Act (ECA) to enable better price realization for farmers and to deregulate commodities and do away with pre set stock limits. It also included the setting up of a central law to facilitate farmers to exercise adequate choices for selling their produce in a barrier free environment to the highest bidder.

The Fourth Tranche spoke of reforms in the coal and minerals mining policy, opening up of the space, defence and atomic energy sectors of the economy to private players, providing for revamp of airports and creation of welfare infrastructure.

The fifth and final tranche released additional Rs 40k crores for MNREGA, aimed at limiting the footprint of the Public Sector Enterprises, opened up all sectors of the economy to private players, suspended key provisions of the IBC for upto a year, proposed decriminalising of provisions within the Companies Act, eased listing norms for companies and allowed enhanced borrowing of funds by the states from 3% to 5% subject to meeting certain key and quantifiable parameters.

The total outlay for the ‘package’ was Rs 20.97 lac crores,  of which almost 10 lac crores had been ‘delivered’ prior to May 12 through the RBI’s heavy lifting and the Government’s 1.7 lac crore  relief package in March ’20. The balance had been unveiled now and that’s how the gargantuan 20 lac crore was reached.

The Amul Topical shows the Amul Girl with a plate of Amul Butter and her friend is happy to take generous helpings of the same, while holding a slice of butter coated bread in his hand.

The Tag Line – India’s stAmulus package ! – grandly announces the ‘Stimulus Package’ unveiled by the Government and is a play on the words stimulus and Amul together.

The Punch Line – Local Bhi. Global Bhi. – is a take on the PM’s call for ‘going vocal about local’ and is deftly modified to endorse Amul’s indigenous and global credentials.

But the euphoria over the stimulus died down just as rapidly it had risen. There was no stimulus. This was May 17, 2020.

Noah’s Ark was there alright but someone had forgotten to rig up the sails!

The reactions were universally consistent and ranged from various observers terming the stimulus package as – ‘the core is hollow’, ‘confidence trick’ and ‘entertainment’ – to some declaring it as ‘too little too late’ and accusations flew hard and fast that the Government was using the ‘lockdown’ as a smokescreen to further its neo-liberal economic agenda.And the next day the Sensex dived 1,069 points (3.44 per cent) as part of its greetings to the Atmanirbhar Bharat Abhiyan.

Political detractors pointed out to Modi’s penchant for mega announcements and accused him of indulging in jumlabaazi when he declared the ‘stimulus package’ to be ‘10% of the GDP’.Whereas, the actual stimulus content was 2 – 2.5 lac crores – which added up to 1% of the GDP!In economics, supplanting a ‘0’ carelessly, to replace facts,can cause havoc and untold miseries.

To be fair to the naysayers, this time they could not be dismissed as ‘Modi baiters’ and urban naxals out to discredit bonafide government moves.

When analysed even cursorily, the entire package is predominantly about credit and liquidity infusion and policy fixes. Whereas the urgent need was to ensure sustenance of migrant workers, survival of MSMEs and businesses and wage support across sectors. And on all these counts the stimulus fell way short.

The unroganised sector had been dealt with primarily through MNREGA and food support. And since then two more schemes namely the Jal Jeevan Mission and the Garib Kalyan Rozgar Abhiyan have also been announced to help sustain employment. These have been catered largely through already allocated funds. There would however be a need to cater for enhanced food and sustenance support as the disruptions are going to last deep into the FY and beyond. However, the absence of Direct Bank Transfers has come in for flak and is a major issue for the undocumented within the ranks of the unorganised workforce.

The issue of credit support for MSMEs and redefining of the parameters for the same were major moves within the ‘package’.But there were other pertinent questions that were raised. The problem here is that while collateral free loans, subordinate debt and other such measures are fine on paper, just who is going to be comfortable availing these when there’s no certainty of business resumption and demand restoration? Would already heavily indebted entrepreneurs seek more loans on a wing and a prayer? And wouldn’t their creditors seek repayment of part of previous debt while disbursing any of the fresh credit?

The key to ensuring survivability of the MSMEs today is in providing them support towards servicing of their overheads like rentals, electricity bills and wage support programmes. Would collateral free loans help in this? If they are availed of for servicing running expenses alone up to the mid-term, what happens to the required capital for business resumption?

Was there another way of doing this?

Instead, of waiting for MSMEs to voluntarily secure these loans, funds could have been transferred to various MSMEs as stimulus payouts and helped them survive the downswing till as much as possible. If the government is guaranteeing collateral free loans and comfortable with the entire 3 lac crore being written off then why not channelise it directly and help keep the MSMEs afloat rather than waiting for the thousands of businesses to come knocking for loans? Since these are mandated to be disbursed by commercial banks there would be no immediate impact on the fiscal outgo of the Government. With this logic the Government’s reticence in implementing direct measures is as inexplicable as it is deleterious to the interests of the economy.

As regards the wage support issues, while its one thing to support through EPF contributions but what would this support be worth if there are no employees to support over the mid-term? Again, there was a need to offer loans or wage support schemes to directly provide businesses with the liquidity to tide over the crisis and to make them equal stakeholders in retaining staff to the extent possible. Sadly there wasn’t any provision for this instead there was only a much contested diktat to not to do so, which too has now been struck down by the Supreme Court.

Though measures announced to ease liquidity flows to NBFCs are among the better provisions of the ‘package’.How far reaching would this be in isolation and in an environment shorn of demand, is anybody’s guess.

Where the ‘stimulus’ definitely deserves credit is for measures such as reworking the criteria for classifying businesses as MSMEs, for demonstrating regulatory forbearance for classifying assets as NPAs and in decriminalising the Companies Act, in proposing amendments to the ECA and setting the animal spirits free in the agri sector, in its vision for the coal and mining sectors, and in the opening up of all sectors of the economy for all players and the reappraisal of the management and role of the PSEs.

But all of these are policy fixes. And do not add a single paisa in the wallets of the hapless millions reeling under the effects of the ‘lockdown’.

There are some glaring deficiencies in the way the whole ‘package’ was conceptualised. There has been reliance on monetary policy to ease livelihood issues which isn’t an ideal fix in the best of times.This can later become a bigger problem if the NPAs begin to accumulate within the banking sector as a consequence of the liquidity and credit push being shepherded by the RBI.

Banks are stashed with liquidity but aren’t comfortable extending loans due to the suspect nature of asset quality that they will end up holding. And is it even conceivable to imagine banks going all out to extend loans in the aftermath of the NPA crisis and its fallout on banks and bankers per se.So credit flow isn’t going to happen, at least not easily.

And then the curious case of missing out on sectors that generate the max employment in India – tourism, hospitality, transport, aviation and start-ups. How are these sectors to survive? There are no answers to this question in the ‘package’.Banks have been clamouring for being allowed to restructure over 3 lac crore worth of loans extended to these sectors but as yet there’s been no decision on the same, while businesses continue to bleed white.This is bizarre that such vital sectors find no mention in the package but bee keeping, animal husbandry and fishery benefit from Government largess.

It is a given that once the loan moratorium period elapses there would be mass layoffs and closure of businesses.There’s definitely a case for extending the loan moratorium for another six months but this time in one go and not in signature bureaucratic style of incremental extension, which doesn’t aid businesses in planning ahead. Catastrophic effects of mass closures needs to be anticipated and avoided to the extent possible. And the issue of interest on interest also needs to be resolved to let the people actually avail of the facility extended to them.

While its heartening to see regulatory forbearance being propagated by the Government but in its zeal it has suspended sections 7,8 & 10 of the IBC which deal with initiation of insolvency proceedings against debtors. While it is logical to attempt to restrain operational and commercial lenders from going after beleaguered businesses but how does it justify to restrain businesses from themselves filing for insolvency? Its been directed that the pandemic related defaults will not be considered while classifying NPAs but then how would it be discerned or established that a default is actually caused by the pandemic or otherwise. And despite these measures, Section 3 of the IBC still is in vogue and that allows lenders to go after promoters. So what exactly is happening?

What about big businesses?

We don’t hear of any support to them. Simply because we assume they won’t collapse or are too big to fail? But neither of these issues is for a fact. So what if large businesses collapse? There is a need for loan restructuring and massive incentivising of the businesses to hold on to their employees. Is the thinking that if the Government is seen to support large corporate it would be back to ‘suit boot ki sarkar’? Well, then so be it. After all you need these businesses don’t you? Then, why this coyness and double standards? Can we have less politics please and more of leadership!

And now for the fiscal deficit,which seems to have yet again hemmed in Modi just as it was back in 2017.

Well, it is true that India doesn’t have the elbow room to effect large scale expansion of the fiscal deficit which has ballooned to 4.6% of GDP for FY 2019 – 20. We definitely are treading on thin ice. There have been calls for monetising the deficit by printing money, that may not be an ideal solution and comes with attendant risk of a macroeconomic collapse. However partial monetising may yet be considered in favour of added borrowing by the Government.

Analysts and experts across the globe have been advocating higher discretionary spending by Governments to effectively ‘spend’ their way out of the economic abyss that the coronavirus has led us all into. In that sense alone, the fiscal outgo at max in the current FY wouldn’t be more than 2.5 lac crores at best, and this includes the component included in the initial March ’20 relief package. This actually adds up to 1% of the GDP and not 10% as stated by the PM. There seems to be room for 1 to 2 % infusion of Government spending on vital aspects discussed previously and not doing so in a timely manner will render the intervention toothless.

Being frugal is also not an option in the face of large scale annihilation of livelihood and businesses and neither is recklessness a virtue in such times. Innovative measures such as clubbing subsidies on power and fertilizers to farmers and transferring them as DBTs and preventing leakages can release much needed resources for the Government.

Fiscal prudence is necessary but taking it too far and remaining conservative in the face of economic annhilation is really taking it too far!

A couple of days after unveiling the stimulus package the FM expounded on the rationale for the cautious approach of the Government.She stated to the Economic Times that ‘lessons of the 2008 – 13 period had been factored in while designing the 20 lac crore package’. Her assertion was that since the covid19 situation is a long drawn one there would be a need for additional interventions and thus the Government had to adopt the approach that it did. This is compelling logic and it can only be hoped that when the second intervention comes through, the FM remembers her own statement.

If a 40 – 50k crore stimulus package had been unveiled in 2017 would the economy not have been in better health to deal with the ‘lockdowns’? We definitely find ourselves in a similar bind and are doing too little and will rue the half measures taken.

And lastly, an economy is a mix of demand and supply dynamics. While we have gone OTT with supply measures, we have done nothing to address the demand side issues. Who would take loans to produce a product for which there are no buyers? And with uncertainty ruling, consumers would be cautious in opening their purse strings. While we need to look after the migrants workers and the unorganised sector, it’s the middle class which actually spurs growth in sales of consumer goods. Thus there is an urgent need to put more cash in the hands of the consumers by considering revisions in the rates of GST, stamp paper duties and income tax.

The Government seems to be worried about losing out on tax receipts.But somehow is blindsided to the reality of low incomes and high taxes leading to depressed consumer sentiment.And eventually there would be minimal sales and minimal tax receipts. Whereas, benefits of reducing key tax indices and its salutary effect on sales cannot be further underscored.

With the major issues remaining unaddressed, it was natural for the stimulus package to be brutally analysed and then shredded for being nothing but a clever play on numbers. And it is a fact that it is shallow and lacks the capacity and heft to see India through this crisis.

While the policy fixes announced are definitely going to spur growth, but that would begin to manifest only after about two years. So what happens till then? How does opening up of the space, defence and atomic energy sectors help in the short to medium term? The entire premise of introducing policy fixes while announcing a coronavirus related relief package was incongruous to say the least. Could these not have been announced a few days later or a few years earlier?!

The GDP is slated to shrink by a whopping 45% in the second quarter of FY 2020-21 and the economy is going to contract by 4 to 5%. These are mere figures but they hide the real numbers in terms of the misery that will be caused to millions who will constitute the data set for these statistics. The Government seems to be betting on a ‘V’ curve recovery driven by the post covid19 impulse buying. But that itself is firstly not a certainty and neither will it suffice and nor will it compensate for the stalling of the key sectors of the economy.

There is widespread acknowledgment of the Government’s challenges and the unprecedented uncertainty of the times. But there is widespread distress and misery too. Despite that, the ‘stimulus package’ has been tepid,timid and tentative in its conception and it seems that after a point in time we are simply on our own!

The buoyancy in the economy is contingent upon the triumvirate of Government expenditure, consumption and investments. In its present form the ‘stimulus’ does not have anything to show against Government spending and enhancing consumption. With this as the reality, is there really a need to impart spin to this fact? Rather, sooner the reality is accepted, the better it is for us and those behind these measures.

While the discerning have gathered that the Government really could not afford to go all out in the face of a still unfolding crisis, its perhaps the unnecessary spin on the ’20 lac crore’ tag line and the superfluous policy fixes coupled with minimal DBTs that has irked most and has led to the widespread attacks on the non starter of a stimulus package.

What the PM needs to realise is that through this journey it’s his credibility at stake. And to that is connected our fate.

With all round wage and job losses, the spectre of hyper deflation doesn’t seem all that unlikely. After all in the post covid19 times, is there anything which is a certainty other than uncertainty!

And while all this unfolds we fatalistically await the Government’s next ‘calibrated’ measure. It just might act too.But the window for that may have already closed.

This was definitely a stimulus to remember.

For all the wrong reasons though.