Don’t worry, be happy!

You have got Rs 16.48 lakh crore already

M K Tayal: To tide over the economic loss perpetuated by the lockdown, Rs 16,48 lakh crore out of the Rs 20 lakh crore announced by Prime Minister Narendra Modi have already been injected or in the process of being injected in the economy.  In a sense, it is an assortment of government’s packages past and present, and several others steps which have already been announced. It is mostly to provide liquidity and making credit available for industry to tide over the slowdown created by the sudden and unplanned lockdown and also to directly give money transfers to the poor. Modi admitted that the package included measures announced by the finance minister and the Reserve Bank of India and also that the relief announced also includes ‘liquidity’ measures.  

And a huge chunk of the Rs 20 lakh crore stimulus package, Modi announced on Tuesday, was budgeted. It is not likely to impact the government finances and could take effect over a long-term, if not immediately. For instance, Finance Minister Nirmala Sitharaman mega announcement to infuse Rs 3 lakh crore in the MSME sector is not a direct transfer of funds, but more to enable the banks to give out collateral-free loans to the hard-hit small and medium industries. Nevertheless, MSME industry bodies has already said that the proposals are frivolous and gimmicky. “The MSMEs needed ventilator while government had prescribed medicines which will not provide immediate relief.”

Where is the money going to come from?

From the start it is clear. The Rs 20 lakh crore is the fiscal stimulus package is government of India’s Rs 30.42 lakh crore projected spending for the financial year 20-21. The government is repackaging it to time it so that industry and people’s burden are mitigated. It is smart fiscal jugglery supported by intention to support the economy with a lot of guarantee and tightening of the RBI, roping in the PSU and private sector banks, PSUs, organizations like Sidbi, Nabard, NHB, PFC, REC etc.

The government recently increased its public borrowing for 2020-21 by Rs 4.2 lakh crore from RBI. These measures are to cover the shortfall in tax and revenue collection and to provide relief to the people. Any assistance in this time of sort of a man-made calamity is a welcome step.

Then, the RBI infused liquidity of Rs 3.75 lakh crore by reducing repo rate (interest rates to the banks for a short term) on 27 March 2020. The RBI has already taken significant steps adding up to over Rs 4.73 lakh crore. The total liquidity already injected in the system by the RBI is to the tune of Rs 8 lakh crore.

Direct transfers

The Government has already spent Rs 10,000 crore in the last two months to create 14.62 crore man-days of work under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

Money transfers – Rs 61,380 crore over the next three months:

Women Jan Dhan account holders – Rs 10,000 crore

Widows, elders, and disabled-Rs 3,000crore

Farmers – Rs 17,380 crore

Building and construction workers – Rs 31,000 crore

Three crore farmers have directly taken the benefit of 3-month loan moratorium with agricultural loans to the tune of Rs 4.22 lakh crore, according to Sitharaman.

National Bank for Agriculture and Rural Development (NABARD) refinanced Rs 29,500 crore to cooperative banks as well as regional rural banks in March, according to the FM. Nearly 63 lakh farmers loans to the tune of Rs 86,600 crore were approved between March 1 to April 30, Sitharaman said on Thursday.

In addition, the centre provided Rs 4,200 crore as Rural Infrastructure Development Fund to the states. Rs 6,700 crore working capital limit had already been sanctioned by the government for procurement of agricultural products to state government bodies, she added. Also 25 lakh new Kisan Credit Cards were sanctioned with a loan limit of Rs 25,000 crore.

The government was undertaking a drive to enroll returning migrants, the finance minister said. The move will cost Rs 3,500 crore to the government, says Sitharaman. The minister also said, the government would supply free food grain to migrants for the next two months – June and July. This initiative will benefit about 8 crore migrants, says FM. Interestingly, the two statements are contradictory. The government did not permit any movement during the lockdown. The migrant workers moved without permission and there were no records being maintained, either by the police or local administration on the mass movement.

The fiscal deficit – difference between income and expenditure – is going to be around 5.5 to 6 percent of the GDP or approximately 12 lakh crore, according to a newspaper.

Difficulties likely arise:

The government has extended EPF benefit for companies employing up to 100 workers of which 90 per cent earn less than Rs 15,000 each per month. How is this possible – out of 100 employees – 90 employees with below 15,000 salaries? Will no such company have managers, supervisors, specialized officials?

  • The government plans to give collateral free loans to MSMEs through banks. But the government has set a deadline of Oct 31, 2020 to avail such loans to only those eligible companies who had loans running prior to the lockdown. The government expects to support 45 lakh units. But with the lockdown conditions unlikely to be lifted and revival of demand not immediately possible, and a fleeting work force, how are the MSMEs going to be fully operational till October end.
  • In any case, the Government outstanding guarantees rise from Rs 4.5 lakh crore to around Rs 8 lakh crore in 2021. With a budget of 200 lakh crore, in times like these, with lockdown and economic slowdown, the guarantee can come back to haunt the government. What if the economy is unable to recover and government is not able to generate revenues and NPAs rise?

The 20 lakh crore includes:

Liquidity through RBI (Feb 6): Rs 2.8 lakh crore

Liquidity through RBI (Mar 27): Rs 3.74 lakh crore

Repo reduction: Rs 1 lakh crore

CRR cut by 100 bp to 3 percent of net demand and time liabilities: Rs 1,37,000 crore

Accommodation under marginal standing facility hiked from 2% of Statutory Liquidity Ratio to 3%: Rs 1.37 lakh crore

Fiscal package by FM (March 27) – Rs 1.7 lakh crore

Further Repo reduction (April 17) : Rs 50,000 crore

Refinancing of Sidbi, Nabard and NHB: Rs 50,000 crore

Special liquidity facility for mutual funds (April 27): Rs 50,000 crore

MSMEs collateral free loans by banks – Rs 3 lakh crore

Total injected                       Rs 16.48 lakh crore

Balance remains                  Rs 3.52 lakh crore

Total Package                       Rs 20 lakh crore


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