Context: The Union Finance Minister has announced Rs 1.70 lakh crore relief package under the newly framed Pradhan Mantri Garib Kalyan Yojana for the poor to help them fight the battle against CoronaVirus (COVID-19). The central government’s package comes a week after Kerala first announced a Rs 20,000-crore support for its people. Many states including Uttar Pradesh, Uttarakhand, Punjab, Telangana, and Rajasthan followed suit. Reserve Bank of India announced a series of measures to counter the economic slowdown caused due to COVID-19.
Prelims: Current events of national and international importance.
Mains: GS III-
- Indian Economy and issues relating to planning, mobilization of resources, growth, development, and employment. Inclusive growth and issues arising from it.
Immediate Impact of the Announcement on the Market
|Is there a specific strategy used by the government in this relief package?|
- Government has followed a two-pronged approach:
- Supply Cycle:
- Ensuring a steady supply of food and cooking gas to poor people
- Easing cash woes of the vulnerable sections of society
- Fiscally prudent:
- By utilizing existing schemes funding for the package is kept within the budget so as to retain control over the deficit
- Preserving Financial resources:
- Given the uncertainty over the length of crisis – the government may announce future relief packages to adapt to changing situations.
- Supply Cycle:
- Cash Flow:
- Monetization of massive deficits starts can lead to high inflation.
- Modest cash transfer might not be enough given the drying up of incomes for the vulnerable sections of society
- Implementation issues:
- People may face difficulties to draw money from their accounts during the lockdown
- Migrant laborers may find difficulties to access the extra food grain announced
- Package does not address the challenges being faced by Informal MSMEs and other hard-hit sectors.
- Globally, many countries had announced stimulus packages involving 10-12% fiscal expansions. In comparison, this package is only about 0.75% of India’s GDP, which is marginal.
- The Government should now turn its focus towards businesses that are running out of cash and may soon default on even salaries and statutory commitments if relief is not given.
- Part II of the economic relief package should not be delayed beyond the next couple of days.
- Intervention by RBI like providing regulatory forbearance, the moratorium on interest payments, changing classification norms, and ensuring easy access to credit.
- Centre needs to enhance the resources of the State through measures like
- Releasing all the pending dues owed to the state governments on account of GST compensation.
- Assist states in raising finances from markets (by giving sovereign guarantees)
- Sharing bonanza from fall in Crude Oil Prices
- Consult States to ensure that supply chain, spread across multiple states, of essential commodities is not disrupted
- Harvest time may lead to price fall or wastage due to disruption caused by lockdown, States to be financially supported (agriculture is a State subject).
- Civil Society and Corporates need to pitch in during this crisis with their financial and human resources.
- The fiscal deficit is bound to go up substantially. The higher borrowing programme will need the support of the RBI if the interest rate is to be kept low.
- The monetization of the deficit is inevitable.
- The strong injection of liquidity will store up problems for the next year. Inflation can flare-up.
- The government needs to be mindful of this. All the same, the government must not stint and go out in a massive way to combat the virus. This is the government’s first priority.