19 May, 2020
8 Min Read
A matter of relief: On economic stimulus package
With the announcement of the final tranche of Atmanirbhar Bharat Abhiyan, the government tries to give a strong supply-side push by boosting availability of capital on easy terms, keep income and wage support schemes to the minimum, empower constituencies ranging from farmers and workers to businesses, and finally, the most important, keep the damage to the fiscal as low as possible.
The fiscal impact of the ?20-lakh crore package is estimated by economists at between 2-3% of GDP and that includes drawals from provisions already made in the Budget for this fiscal.
The pillar on which the package rests is liquidity support so that businesses can crank up again and set the economic cycle back in motion.
The government has done well in increasing the budget for MGNREGA by two-thirds, adding another ?40,000 crore.
With migrants now returning to their villages, MGNREGA can be leveraged to keep them occupied with meaningful work. The demand of States for higher borrowings limit has been granted but with clear reform milestones that they have to meet.
It remains to be seen if States are enthused to fall in line. The government has also used the opportunity to unleash some much-needed reforms in agriculture marketing, open up more sectors for private participation, enhance foreign direct investment in defence, corporatise the monolith Ordnance Factory Board and so on.
While it is impossible to satisfy all sections of society, especially in a pandemic situation, it has to be said that the government has taken a huge gamble by refusing to borrow and spend more on boosting demand. If the strategy of boosting supply works, it is fine. But if it does not, the government will be faced with a bigger problem down the line.
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