The government slipped in not focusing on demand

Now that the details about the release of the Rs 20 lakh crore package are complete, several questions arise. While the government claims this is 10% of the GDP, the exact proportion of the stimulus, the impact of announcements on vulnerable sections of the population and sectors in distress, and whether the package is sufficient to revive the economy, merits critical scrutiny.

Broken down, the direct, visible and quantifiable fiscal injection may hover at Rs 4 lakh crore, barely 2% of GDP, if that. The government’s figures accept that 50% of the Rs 20 lakh crore figure amounts to monetary support, including loan facilitation and enhanced incentives to lend.

How much will farmers, migrant workers and daily wage workers get in their bank accounts, notwithstanding the food distribution and loan moratorium? What is the nature of fiscal incentives, tax reductions and statutory dues waiver to individuals and enterprises? Can micro, small and medium enterprises (MSMEs) expect an interest waiver to boost revenue?

These questions gain relevance because while real fiscal incentives, when given, will ease some burden, it is unlikely that they will alleviate the setbacks in consumption patterns which will take relatively longer to recuperate. The fundamental problem in the economy today is the lack of consumption and demand. People need money to use.

The majority of the schemes must, therefore, be linked with direct consumption of goods and services. But the inherent dangers — savings and leakages — must be avoided. All incentives must be employment- and fixed-cost-oriented. Millions of people are expected to be jobless and putting them back to work and supporting them in the interim is critical.

For this, we need equitable distribution and verification of the delivery to the intended class . Income-based distribution has to take place by payment of funds into the Jan Dhan accounts. In this, paying progressively higher stimulus to lower income groups is crucial. The Marxian creed “from each according to his ability, to each according to his needs” is apt at such times.

But this has not been done. Instead, the government has come up with a set of measures. Let us examine these. The efficacy of collateral-free loans of up to Rs 3 lakh crore or government guarantees is questionable when it comes to those units which are reeling under debt. They will remain liabilities in the books, liable to be repaid, and can, thus, hardly be termed as part of the fiscal stimulus.

The payment of pending wages during the lockdown period is a huge concern. The chancellor of the exchequer in the United Kingdom, Rishi Sunak, announced the Coronavirus Job Retention Scheme for workers, which amounted to paying 70% of their wages for about a fourth of workers. Irrespective of the scale, the concept requires urgent implementation in India.

Another set of announcements amounts to tweaking old policy or to amending it for the medium or even long-term, by when it may well be too late. All this appears to do nothing for sectoral victims, waiting anxiously for direct injections. This includes airlines, the hospitality sector, and daily wage earners. In contrast, the United States announced a multi-billion dollar package for the airline sector and Singapore did the same for the tourism sector. No corporate tax/income-tax (I-T) holidays or even interest waiver is on the cards here. Reducing tax deducted at source (TDS) by 25% is not even cosmetic, without a corresponding cut in the rates of I-T.

The government’s well-intentioned policy of procurement below Rs 200 crore without global tendering, as part of a nationalist self-reliant India, may raise legal eyebrows as being violative of the World Trade Organization norms and may have a deleterious effect in attracting reciprocal foreign direct investment.

There can no longer be an indecisiveness regarding the fiscal deficit. The Fiscal Responsibility and Budget Management Act, 2003, should be amended to permit a 2% violation and, if necessary, money should be printed for genuine fiscal injections to targeted sectoral victims. These are not normal times and fiscal prudence is not a principle cast in stone. Flexibility and innovation proportionate to the danger are needed. War is not won by stereotyped, textbook responses, and Covid-19 is no less than a war.

In India, there is always a huge risk of leakages and misappropriation. Apart from targeted mechanisms such as direct benefit transfer and Aadhaar, special task forces comprising private sector, lawmakers, economists, accountants and investigators must police disbursal through State schemes. The courts will have to remain vigilant, even though as instruments of last resort, beset as they are with inherent delays endemic to the system.

Cooperative federalism during pandemic emergencies must be reconfigured. How much support state governments receive in the form of fiscal support, notwithstanding their political affiliations, requires political collaboration and maturity which seems to be lacking at the present time. While everybody realises that all cannot be done at once, taking big, clear and concrete steps in the right direction is the way forward. The government’s motto — sabka saath, sabka vikas — needs to be tied to the former prime minister of Britain, Lloyd George’s famous admonishment: “Don’t be afraid to take a big step if one is indicated. You can’t cross a chasm in two small jumps.”

Avishkar Singhvi is an advocate in the Supreme Court.

The views expressed are personal.