The package announced by Prime Minister Narendra Modi and finance minister Nirmala Sitharaman recently to revive the Covid-shattered Indian economy embraces window-dressing more than it stimulates. First, the Rs 20 lakh crore package is not entirely fresh.
Several fiscal measures announced earlier, along with the estimated economic impact of monetary stimulus from the Reserve Bank of India are included in the package, and these amount to about 50 per cent of the headline amount. Also, the actual fiscal impact of the steps announced is way below the amount stated because a lot of measures are through aspects such as guarantees.
Besides, while the government has claimed that the total stimulus is 10 per cent of the nation’s GDP, the fact is that the actual fiscal impact of the additional amount will be substantially lower when the previously announced measures are taken out.
The 10 per cent figure seems aimed at showing that India’s stimulus package is comparable to those of other nations. Thus the focus of the entire exercise seems to be more on politics rather than on economics. Almost all reputed global agencies have discounted the official optimism over the package and underlined that the stimulus will not really offset the Covid blow.
They have flagged the absence of any dedicated steps for the most troubled sectors. At the marketplace, the initial euphoria over the government’s package faded very soon as brokers read between the lines. The BSE Sensex crashed and the rupee fell within days of the announcement of the package.
Several sectors of the Indian economy have also raised their voices claiming that there was no direct stimulus for them in the package. Exporters are worried over a likely fall of 20 per cent in exports during the financial year 2020- 21. The auto sector, which was already reeling under pressure before the pandemic, says it has been left out.
The non-bank financial companies were also in crisis before the pandemic and now with limited stimulus from the government they are unlikely to come out of the prevailing liquidity crunch. There are also no major announcements for the highly vulnerable sectors such as airlines, tourism and hotels.
Already several companies have announced that they will not be able to pay their employees for very long and lay-offs have started. The economic package has not taken into account the massive unemployment problem that is looming large. The package has mostly dealt with the supply side and virtually ignored the demand side.
Even if production picks up after the stimulus package begins to have an impact on the economy, there will be few consumers to buy goods because the purchasing power of people is already at rock bottom. The stimulus package is thus at best a very small step in the right direction. But the nation is actually heading towards a crisis much worse than any that may have plagued it since independence.