Nirmala Sitharaman

Coronavirus lockdown: Govt unveils Rs 1.7-trillion package for the poor

A few days after the three-week national lockdown came into effect, Union finance minister Nirmala Sitharaman announced a 1.7 trillion rupee food security and income transfer program for the urban and rural poor.

Package includes free food for 800 million people for three months, insurance coverage for essential service providers, front-loading PM Kisan payments and wage increases as part of the job guarantee program .

Sitharaman also promised a one-time payment to women with Jan Dhan accounts and economically backward, retired and disabled widows; additional free cylinders for beneficiaries of the Ujwala program; an increase in unsecured loans for self-help groups; operationalize a construction workers fund; and contribute to the accounts of the provident fund for employees of the organized sector.

Sitharaman did not rule out new announcements targeting other sectors, and a senior government official said that a full set of micro, small and medium-sized enterprises was being developed, refusing to give further details.

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Prominent government and opposition figures reacted to Sitharaman’s announcements.

“Comprehensive measures announced today (Thursday) will lessen the economic impact of the COVID-19 epidemic on the rural and urban poor, farmers, health workers, migrant workers, divyangs, people elderly and other vulnerable segments of society, “said Minister of Petroleum Dharmendra Pradhan. said.

Former Finance Minister P Chidambaram said he was “happy” with the announcements, but called them “a modest plan”.

“When the time comes, the government will realize it needs to do more. The plan gives adequate food grains to the poor for three months, which is welcome. It does not put enough money in the pockets of the poor. Some sections have been completely excluded, “he said.

“You will notice that suggestions such as helping tenant farmers and the needy, maintaining current levels of employment and wages, tax deferral, deferral of equivalent monthly payments, lowering the rate of the GST , etc. have not been processed. Hopefully there will soon be a plan II, “added Chidambaram.

At the finance minister’s press conference and in the official press release, the Center refused to share the expenses of the constituents of the 1.7 trillion rupee package. Since some of the announcements were not exactly new monetary expenses, it was not clear what the additional expenses would be.

In the absence of an official break, the envelope return calculations show that the size of the additional expenditure is slightly less than 1.03 trillion rupees, or about 3.4% of the size of the budget of the Union 2020 -2021.

For example, Sitharaman said that PM Kisan’s first payment would be in advance and that each farmer would receive 2,000 rupees in April. Officials said it would cover around 87 million farmers and the spending would be around Rs 16,000 crores. However, as this is an initial charge and not an additional amount, the figure cannot be considered as an additional expense and is part of the Kisan 2020-2021 allowance of 75,000 crore rupees.

READ ALSO: Covid-19: Rs 1.7-trn rescue package welcome, but more support needed

Sitharaman also said that states will be asked to use the construction workers welfare termination fund of Rs 31,000 crores. However, the corpus of this fund comes from employers and is maintained by the States, without any contribution from the Center.

For the food distribution part of the package, nicknamed the Pradhan Mantri Garib Kalyan package, the center will provide free 5 kilos of rice or wheat per person to 800 million beneficiaries of the public distribution program, in addition to the 5 kilos to which they are entitled . at a subsidized rate.

“Each poor household will also receive a kilo of pulses. The distribution of these will be in two installments, ”said Sitharaman. According to sources, the cost of the treasury for free rice, wheat and pulses could be around 45,000 crore rupees.

Sitharaman said essential service providers, such as medical personnel, sanitation workers, ASHA workers and others on the front line to respond to the Covid-19 pandemic will receive insurance medical treatment of 50 rupees. “All the public health centers, wellness centers and hospitals of the Center as well as the States would be covered by this plan. About 2.2 million health workers would receive insurance coverage to fight the pandemic, “said a statement, but no details were available on the cost to the Center.

Among other key milestones, wages under the Rural Rural Employment Guarantee Act would be increased by 20 rupees as of April 1. This would provide an additional annual benefit of Rs 2,000 to a worker. According to sources, the additional expenses would be Rs 16,000 crore.

About 30 million economically vulnerable widows, the elderly and people in the “Divyang” category will receive 1,000 rupees per person free of charge. This could result in an additional expense of Rs 3,000 crore. Sitharaman also said that 204 million women with Jan Dhan accounts will receive a one-time payment of 500 rupees each. This could result in an additional expenditure of 31,000 crore rupees, according to sources.

Women in 80 million poor households who participate in the Ujjwala program will get free gas bottles for the next three months, said the finance minister. According to sources, an additional Rs 13,000 crore could be provided for this purpose.

For employees in the organized sector who earn less than 15,000 rupees a month in companies with less than 100 workers, the Center will pay 24% of their monthly salary into their pension account for the next three months. This could cost an additional crore of 5,000 rupees.

In addition, the regulations of the EPFO ​​will be amended to include the pandemic as a reason to authorize a non-repayable advance of 75% of the amount or three months of the salary, whichever is lower, on the accounts of 40 million workers, said Sitharaman. The minister also said that women organized through 6.3 million self-help groups will be eligible for unsecured loans of 20 lakh rupees, compared to the previous limit of 10 lakh rupees.

The Minister of Finance refused to give the budgetary and fiscal impact of the announcements. Officials have said unofficially that since 2019-20 is almost over, these additional expenses will be accounted for in the 2020-2021 fiscal year.

While analysts welcomed the announcements, that didn’t stop them from lowering growth estimates.

“We are setting our estimate of GDP for fiscal 21 at 2.6%, with a clear downward bias, with the GDP figures for the first quarter of fiscal 21 declining. Estimates of GDP for fiscal year 20 could also see a downward revision from 5% to 4.5% with T4GDP growth of 2.5%. The total cost of foreclosure is at least Rs 8.03 lakh crore in nominal terms, “said Soumya Kanti Ghosh, chief economic adviser, State Bank of India.

“FM announcements to provide relief in these unprecedented times are welcome, especially the provision of additional food, which will provide food security, free LPG and down payments,” said Aditi Nayar , Senior Economist, ICRA.

“However, the new announcements related to cash transfers seem relatively modest at this point. As a result, we now expect the impact of social distancing and blockages to constrain GDP growth to 2.4% in Q4 FY20 and to a marginal rate of 0.5% in Q1 FY21, despite the support of agriculture and public spending. As a result, we expect annual GDP growth to drop from 4.4% in FY20 to 4.2% in FY21, “she said.

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