India’s Covid Relief Package – A Critical Review: Dr. Sibi Abraham, Department of Economics

The Rs 20-lakh crore relief package announced by Prime Minister Narendra Modi is one among the most substantial in the world after the financial packages announced by Japan (21% of its GDP), the USA (13% of GDP), Sweden (12% of GDP) and Germany (10.7% of GDP). The combined package that works out to roughly 10 per cent of the GDP seems to be huge but it won’t derail the government’s finance. A major part of it, as much as Rs. 8.04 lakh crore, is the additional liquidity injected into the system by the Reserve Bank of India through various measures in the last 3 months. Then comes the Rs 1.7 lakh crore fiscal package announced by Finance Minister Nirmala Sitharaman on 27^th March. The entire details of the balance economic package are not yet known, but it stands at Rs.10.26 lakh crore.  

Now there are some areas that raise our eyebrows at this point of time. Primarily, is it fair to consider RBI's infusion of liquidity into the system as an economic stimulus? We should bear in mind that the liquidity hasn't translated into credit or gone to various sectors that need the most. Even though banks are flooded with liquidity, they may not be willing to disburse the money at this time of covid outbreak. Another important aspect is that the government has already proposed to spend Rs 30.42 lakh crore in the Union Budget 2020-21 and the Rs 20 lakh crore relief package is only approximately 65 per cent of the budget outlay for the year.

Even if we assume an additional requirement of Rs 10 lakh crore, the current borrowings won't be enough to accommodate it. The government will be in need of additional money from the market. The big question is whether the market has the appetite to buy such large quantities of government paper. It is estimated that the government will ask Reserve Bank of India to monetise (printing currency) about 6-7 lakh crores to fund the economic package. This monetisation will most probably induce inflationary pressures in the already weakened economy. The government can also approach the Reserve Bank for some financial support this year too, like it got through a higher dividend pay-out last year. During 2019-20, the RBI approved a Rs.1,76,000 crore dividend payment to the government. Similar or more dividend payment may flow this year also in order to help the government to finance its stimulus package.

The Finance Minister has announced the fourth tranche of the relief package on 16^th May which include measures to open up key sectors of the economy including defence production, power, space, coal and mining. FDI limit in defence production is raised to 74 percent from the current 49 percent. Although most of these measures are the reflection of the earlier announcements in disguise, the surprising element is the timing of this declaration. Is there any quick fix for the reeling economy in these measures? At the same time, these pro-capitalist reforms can give a short-term boost to the market sentiment; the real beneficiary will be Mukesh Ambani’s Reliance Industries, which has come up with a Rs. 53,125 crores rights issue, which is scheduled to be open for subscription between May 20 and June 3.

On 5^th May, government raised excise duty on petrol and diesel by Rs 10 and Rs. 13 per litre respectively. This itself will provide additional revenue of about Rs. 1,75,000 crores in FY21. The recent borrowings from Asian Development Bank and BRICS’ New Development bank will also give some cushion to the central exchequer. In addition, sources indicate that import duty on a few items will be increased as the government looks forward to strengthen its 'Make in India' initiatives.

After all these packages of crores, what is left for the common man? Still, thousands of weary migrant workers are walking back to their villages and towns on empty stomachs. We can’t ignore the bewildered pain and angst of the ordinary man that hovers in spite of all these perks and packages…and what does Atma-Nirbhar mean for you ultimately.