From the 20 lakh crore package, we can find out that most of the expenditure are close to development expenditure in nature and a mix of socio economic packages. Up till three tranches, focus is on creation of jobs, boosting the lower income group and making India 'Atmanirbhar'. The stimulus package is believed to have a multiplier effect in the economy.

By Akanksha Tiwari, Expert on Economy

New Delhi, 16th May 2020:

It is said that amidst the darkness, a speck of light is a ray of hope and as Jeffrey Fry has termed that, ‘sometimes life seems a dark tunnel with no light at the end but if you just keep moving forward, you will end up in a better place.’

From the terror of Pandemic COVID -19, followed by the lockdown to control the spread of Coronavirus, the tunnel of COVID -19 seems to be endless but then government decided to come up with an stimulus package which comes up like a ray of hope for the people who get terribly exploited during this ongoing pandemic.

Though the package seems to be lucrative but its utility will be clear only if it will be implemented effectively and transparently and not just a policy on paper.

Prime Minister Narendra Modi announced a jumbo 20 lakh Crore stimulus package which is close to 10% of the GDP which is close to the financial package announced by the United States which is 13% of the GDP.

The allocation of 20 lakh Crore so far was announced by Finance Minister Nirmala Sitharaman into three tranches, focusing on business including MSME, poor, migrant and farmer and on agriculture.

Analysis Says that:

With the government's Rs 20 lakh crore stimulus package, the country's fiscal deficit is likely to be more than double to 7.9 percent. In the current financial year, according to an SBI research report, the report had earlier estimated the fiscal deficit to be 3.5 percent of GDP this fiscal year. The cumulative actual fiscal impact is only around Rs 1.14 lakh crores or 0.6 percent of GDP," the report said.

The government has announced an additional borrowing of around Rs 4.2 lakh crore or 2.1 percent of GDP.

From the 20 lakh crore package, we can find out that most of the expenditure are close to development expenditure in nature and a mix of socio economic packages. Up till three tranches, focus is on creation of jobs, boosting the lower income group and making India Atmanirbhar. The stimulus package is believed to have a multiplier effect in the economy.

The first tranche of economic package focused on employment generation through boosting MSME including support to NBFCs/MFIs/HFCs, Liquidity support to DISCOM, relief to contractor, EPF relaxation, statutory PF reduction and TDS and TCS reduction.

As per confederation of India Industry (CII) with around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well as 33.4% of India's manufacturing output and 45% of India's export.

The data shows that pumping money in MSME and steps taken to boost it, will cover and benefit the large number of labour.

These steps to boost MSME will increase the productivity, Employment, supply of MSME, proportion of MSME in india's gdp and export. It leads MSME to reach from Local to Global and support Make in India Initiative by focusing on bottom to top approach.

DISCOM after getting their dues, will work more efficiently and effectively and relief to the contractor will make the construction work start burden free.

So eventually these steps will have direct incremental in supply and indirect incremental in demand. Any economy will fail, if it only focuses on the supply side as it will disturb the equilibrium of the economy. So to match the supply side the government has taken a step to ease the liquidity. By providing benefit via relaxation in EPF and reduction in PF, TDS and TCS will generate demand in the economy.

The second trench of the stimulus package has more focus on a mix of economic and social development by focusing more on poor, migrant and farmers. The fund provided in CAMPA and creating more self-help groups, will not just create employment but also economic stability.

Where else extension of the deadline for the affordable housing scheme CLSS will benefit the middle-income group. This will spur job creation and demand in the economy. It will also stimulate demand for steel, transport, and other construction materials.

The other announcement related to affordable rental accommodation, technology-driven one nation one card, allowing the state to utilize state disaster funds for providing basic necessities to migrant workers and free food grain to migrants for two months, is not development expenditure but a revenue expenditure done for the welfare of people.

Employment in agriculture (% of total employment) in India was reported at 43.21 % in 2019, according to the World Bank collection of development indicators. Being such an important sector of Indian economy, still agriculture of India is not as productive as it has to be and therefore the condition of farmers and workers in allied activities remains an area of concern.

The third tranche deals with farmers, fishermen, food processing and allied activities. Eleven measures have been announced. Eight are related to strengthening agricultural infrastructure, the rest three will deal with governance and administrative reforms.

Improving the infrastructure of agriculture will save the 30% of farmer produce going to waste due to lack of agriculture infrastructure. It will increase the productivity of Indian agriculture and farmer income.

Reform in pricing and marketing will bring transparency and profitability for farmers, with that the Indian farmer will receive an increase which is just 10% to 23% of the price the Indian consumer pays for exactly the same produce. The difference is going to losses, inefficiencies and middlemen.

The overall package will increase the contribution of agriculture in gdp, increasing the export, productivity and increase in farmer income. This package will change the agriculture old methodologies.

The current economic stimulus package is very close to the ' BIG PUSH' Theory first put forward by P.N. Rosenstein-Rodan. In the long run, we can see the development in sectors that will lead to development in the economy if and only if the funds will be utilized effectively.

Are we really in competitive advantage

As India's focus is on utilizing the competitive advantage against China, India is working on calling the industries that are willing to run from China due to COVID-19 and looking for another country to settle up.

Several Indian states like Haryana and Uttar Pradesh have also started proposing terms and have made lucrative offers to woo these foreign companies to their respective states. One point to focus here is that India lacks the skilled labour force compared to China which has a skilled labour force that is attributed to its technical and vocational education and training system (TVET).

In fact, the system helped China to successfully transform into the world's manufacturing hub after it produced millions of skilled workers. We need to focus more on quality skill development and training as these companies who are willing to leave China will need labour quality somewhat close to china's Labour.

Another area to look for is the technological upgrading, cost-effective, infrastructure facility, ease of doing business, and a business environment that needs to be focused on for competing at the global level and giving the best environment for not just investors coming to India but also to domestic companies.

Image courtesy - File Pics Google / PIB 

Akanksha Tiwari is Economics Faculty at Chahal IAS Academy and Guest Faculty of Economics at various other IES and IAS Academies; A Post Graduate in Economics from Loyola College Chennai; Economic Consultant; Speaker at Global Investment Immigration Summit 2020 and Various Other Events; Writer and Lyricist in Entertainment Industry;

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Disclaimer: The opinions expressed in this article are the personal opinion of the author. It doesn’t reflect the views of the Institute, he is associated with. Also, the facts and opinions appearing in the article do not reflect the views of Indian Observer Post either, and Indian Observer Post does not assume any responsibility or liability for the same.