FM's proposals aimed at protecting loss of livelihood; delivery will be key

The finance minister’s package announced Thursday should be seen as the second in a series of measures announced by the government to address the negative impact of the Covid-19 virus. The first announcement concerned meeting deadlines, which were relaxed by three months until June. The same goes for the poor in what can be called the second package, which again envisages a horizon of three months.

Spending should be Rs 1.7 trillion – around 0.75% of gross domestic product (GDP) and can be viewed as a fiscal stimulus. The variety of stimuli is however different because it is not to revive the economy but to support human life, which is the important objective given the disruption caused by the closure of 21 days in which several people were displaced.

The package examines cash transfers as well as the delivery of goods, which is good for the poor. What has not been mentioned is whether it will be part of budget allocations, or beyond. If it is additional spending, it can trigger a widening of the budget deficit under constant conditions. The program of 5 kg of food grains per month for three months must be offered free of charge to each poor person. This will affect 800 million people and would involve around 12 million tonnes of food grains (15 kg versus 800 million over three months), which is not a challenge given the stocks of FCI. In addition, 1 kg per family would imply around 480,000 tonnes (3 kg for 160 million families). The distribution of legumes, however, will be a challenge as there is no mechanism in place to collect them unlike rice and wheat which are purchased by the FCI.

The challenge will be to deliver the same which is always a challenge as last mile connectivity tends to be poor. In addition, the package has talked about increasing the NREGA salary from Rs 20 from Rs 182 to Rs 202, which, on the basis of 100 working days, can give workers an additional Rs 2,000. Here too, the government must strive to create projects and get people to work, as experience shows that the average use of the program was around 50 days. But as far as the provision exists, agricultural workers should be made aware of the same thing and make sure that they use the system. States must participate in appropriate projects.

The package also includes insurance of Rs 50 lakh for all health workers involved in the fight against the disease, which is very useful given the uncertainty of the disease and its impact. There are other announcements concerning contact with women, the elderly, the poor, etc., which will help alleviate their suffering. The “Kisan” plan in the budget which gave Rs 6,000 per year to farmers would be released with the first tranche of Rs 2000, is not an additional allocation but a frontloading of an already existing program.

The FM is not committed to whether the government will announce other plans for Indian businesses that will face a series of challenges. These announcements have been made to those most affected in terms of loss of livelihood and have therefore been highlighted. Businesses, too, would expect something from FM since governments around the world have announced stimulus packages that go beyond 10% of GDP to boost their economies. It is expected that something more will likely be announced this weekend or early next week before the start of the new fiscal year.

Madan Sabnavis is Chief Economist at CARE Ratings. The views are personal.

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