During the earlier phases of the lockdown, all shops, factories and roads were closed; little could be produced or sold and soon enough the economy touched rock bottom.

Realising that extension of the complete lockdown would cause extreme shortages, severe unemployment and permanent closure of many businesses, the Prime Minister addressed the nation on 12 May, extending the lockdown in a limited way and hinting that economic activities will be allowed to resume from 17 May.

Without spelling out details, the PM also announced an economic rejuvenation package of Rs 20 lakh crore, which in money terms, was almost three-fourth of the total Budget expenditure of Rs 26.98 lakh crore of the last financial year.

Elucidating the Prime Minister’s economic package, the Finance Minister announced five sets of measures, on successive days, to rejuvenate the moribund economy.

The first set of relief measures were aimed at pumping in liquidity of almost Rs 6 lakh crore mostly in the Micro Small and Medium Enterprises (MSME) sector, out of which, Rs 3 lakh crore were earmarked for guaranteeing the credit provided to MSMEs by banks and NonBanking Financial Companies.

Power distribution companies or discoms, facing a liquidity crunch, are to be provided funds of Rs 90,000 crore by Power Finance Corporation (PFC) and Rural Electrification Corporation.

Additionally, liquidity of Rs 30,000 crore would be granted to NBFCs and partial guarantees for their loans would be granted up to Rs 45,000 crore, which would boost the construction industry, the major borrowers from NBFCs.

In a further move to increase instant liquidity, Tax Deducted at Source ( TDS) and Tax Collected at Source rates were reduced by 25 per cent and Provident Fund contribution by both employers and employees was brought down to 10 per cent.

The second tranche, announced a day later, had the FM promise Rs 2 lakh crore of concessional credit to 2.5 crore farmers and Rs 30,000 crore additional loans for small and marginal farmers.

In addition to these measures, the FM provided interest subvention on MUDRA Shishu loans and promised that 5 kg grain per person and 1 kg chana per family per month, would be provided for 2 months. There were some other proposals on similar lines.

The third tranche was the most substantial, as it promises spending (as opposed to loans and guarantees) of Rs 1.50 lakh crore for agriculture and related activities; an Agricultural Infrastructure Fund of Rs1 lakh crore has been mooted, Food Micro Enterprises get Rs10,000 crore, fisheries get Rs 20,000 crore, animal husbandry infrastructure gets Rs.15,000 crore, herbal cultivation gets Rs.4,000 crore and bee-keeping and vegetable cultivation get Rs 500 crore each.

Sincerely implemented, investments of this magnitude can transform Indian agriculture.

However, neglect of the agricultural sector and the tardy implementation record of the Government, across sectors, is a likely stumbling block.

For example, out of an allocation of Rs 3.34 lakh crore in Budget 2019 for agriculture and allied activities, only Rs 2.35 lakh crore could be spent. Seen in this perspective, Rs 1 lakh crore appears to be a budget shortfall, made up in the current package.

Also, the schemes on which the current package is to be spent, have not been fleshed out, so far. The economic package, also aims to bring about some much-needed reforms. For example, exempting agricultural commodities from stock limits under the Essential Commodities Act (ECA), limiting the role of Agricultural Produce Marketing Committees, e-trading of agricultural commodities and permitting interstate movement of farm produce would enable farmers to get more remunerative prices.

In the industrial sector, inter alia, all Public Sector Undertakings (PSUs) in non-strategic industries would be privatised while strategic industries would have a maximum of four PSUs each. A goal of Atmanirbharta (self-reliance) has been laid down, with the avowed aim of substituting Global Supply Chains by local supply chains.

A new slogan has been coined ~ “be vocal about local.” On the flip side, the FM clarified that the stimulus of Rs 20 lakh crore included liquidity boosting measures of Rs 8.01 lakh crore announced by the RBI in February, March and April and Rs 1.92 lakh crore worth of relief announced earlier i.e. the relief package announced by the FM on 26 March and sundry other measures.

The current package also includes some of what was being disbursed under existing schemes.

For example, the Rs. 2,000 instalment of PM-KISAN due to farmers was included in the 26 March stimulus. Moreover, most of the stimulus is in the form of credit, pledges and guarantees. The real outgo from the exchequer is hardly 10 per cent of the stimulus amount i.e. Rs.2 lakh crore, prompting some to doubt whether the economic package is really a stimulus or only a liquidity boosting measure. Many in industry have complained that they had asked for relief but had been given a financing deal instead.

A question that comes to mind is, whether loans or guarantees, so liberally doled out by the FM, can really be classified as ‘stimulus’, because loans add to the liability of the recipients. Also, liquidity-enhancing measures of the RBI amounting to Rs 8.01 lakh crore, which are 40 per cent of the economic package, have provided succour to financial markets, not to the public at large. Putting things in proper perspective, total bank credit increased by Rs 9.64 lakh crore in the last financial year but no one then called it a stimulus. For more credibility, financial jugglery like regarding income-tax refunds and a decrease in TDS/TCS rates as part of the stimulus, only in a bid to reach the promised figure of Rs 20 lakh crore, could have been avoided.

A better way to provide stimulus could have been to waive the interest already accrued on existing loans which would have helped businesses to stand up. Moreover, loans given blindly on the Government’s guarantee to MSMEs, at a time when demand is low, have a high chance of becoming NPAs because MSMEs may not be able to sell what they would produce.

Automatic loans to farmers would increase rural indebtedness, the biggest problem of village society, because farmers are perpetually short of money and are likely to utilise loans for other purposes.

Most significantly, almost all measures announced in the stimulus would boost the economy in the medium-term, while the distress of the unemployed and migrant labour demands immediate succour.

One only wishes that the Government had put adequate funds in the hands of the local administration to arrange food and transport for these unfortunate people. One also wishes that instead of concentrating on the supply side, the Government had tried to boost demand by spending a part of the stimulus amount on rural infrastructure building so as to employ workers rendered jobless due to the current slump, in activities like buildings and internal roads, schools, bridges, hospitals, waterworks, sewers etc. in villages and small towns which would create useful assets and provide employment at the same time.

Reforestation and soil reclamation projects can reclaim millions of hectares of overused soil from erosion and devastation. In this context, the increase in MNREGA allocation is not substantial; being only Rs 30,000 above the Revised Estimates for Budget 2019.

At a time when the PM and FM both lay stress on Atmanirbharta, the FDI limit in a crucial segment, defence production, has been increased to 74 per cent. Even otherwise, the Government and bigger corporates like Reliance are desperately trying to woo foreign capital. The Government is making strenuous efforts to lure foreign companies that are relocating out of China.

Moreover, how can we become self-sufficient instantaneously when we import almost all our oil, electronic goods and sophisticated weapons? Also, with foreign participation in most corporates, it is quite difficult to determine what is ‘foreign’ and what is desi. Probably, it would have been better to promote excellence in medical and educational sectors, which would provide much-needed local expertise in these critical fields.

The economic package is aimed at bringing about a change in the way we work, produce and trade. While wishing that the stimulus will succeed in its stated objective, it would probably have been better had the Government chosen to put money in the citizen’s hands by increasing Government spending and providing employment to the crores rendered jobless by the pandemic because a supply-side monetarist approach may not be the best way to reboot our economy.

Last but not the least, the Government may be well advised to have a Plan B ready in case the pandemic does not follow its predicted course of fading away in a month or two.