On 12th May 2020 the news of prime ministers 8 pm speech was all over the media, the public was anticipating an important announcement from PM Modi and he did so by announcing a 20 lakh crore package. Followed by a detailed rollout of the package from Finance Minister (FM) Nirmala in press briefings on 13th and 14th May.
Both PM and FM speeches had past achievements, future promises, and some figures. But the question is, will the country go back on its track to development with what has been said, or is it just a try from the government yet again to shift the goal post from COVID relief to atmanirbhar Bharat by using decorative words and heavy figures.
Package for MSMEs on 14th May 2020.
The two primary sectors of the Indian economy which engage large population is agriculture and micro small medium enterprises (MSME), MSMEs directly employees 11 crores and a total of 19 crores are directly and indirectly are engaged. FM on 13th May 2020 came up with a relief package for MSME, it looked that the pause to the economy caused by the hit of COVID 19 will come to an end, but when we dive into the figures this package rather seemed to be insufficient to make India atmanirbhar.
PM in speech had mentioned that the previous 1 lakh 70 thousand gareeb kalyan relief package and RBI monetary stimulus is included in 20 lakh crore package which accounts for 10% of India’s GDP, but the media has failed to the simple math and has failed to point out the Rs. 8.04 Lakh crore that the RBI had already injected into system even before the announcement of this package. RBI on 6th February and 27th march injected 2.8 lakh crore and 3.74 lakh crore liquidity in the economy, through the targeted long term repo operation and CRR cut, 1 lakh crore and 1.37 lakh crore were raised and 1.37 lakh crore were gifted by RBI for increasing the statutory liquidity ratio from 2%-3%, on the 17th April through the target long term operation 50000 crores were released, in the refinancing of SIDBI and NABARD 50000 crore was given by RBI, on the 27th April RBI again came forward to save mutual funds by injecting 50000 crores When we add up the previous relief package and the various steps taken by RBI it accounts for almost 10 lakh crore. So the new package worth 10 lakh crore or 20 lakh crore? (source)
The government announced 3 lakh crore loan amount will be given to MSME and by availing the, 45 lakh units will be benefitted, which gives an average of mere 6.33 lakh loan to each unit, will this be enough for MSMEs when the categories of MSMEs has been mixed and redefined (Micro up to 1 crore, small up to 10 crores, medium up to 20 crores), also the turnover category has been redefined under the new guidelines(source), this also means the government will be giving tax relief to MSMEs by collecting tax from these firm as per the previous guideline ignoring the larger turnovers. This step will help the MSMEs in the longer run but before that, the government should have addressed the current crisis faced by the consumers of products produced in MSMEs, and to understand that let us look into some figures from CMIE and a survey by Azim Premji University.
- Azim Premji University survey (source)
- The average weekly earnings reduced from INR 2240 to INR 218, 51% salaried have either received a pay cut or haven’t received the salaries of previous months
- 80% urban and 70% of the rural population has started to eat less to save ration.
- Only 36% urban and 53% rural population has received relief under the previous package.
- CMIE Report says that 52% of the previously employed population under the age of 40 has lost the job and 48% of the population over the age of 40 have lost their job.
The government should have shared a detailed plan for creating jobs and stopping pay cuts and job losses(as japan did by paying 2/3rd of the salaries of staff employed in MSMEs) because if this doesn’t stop market will not have consumers and demands to buy products that are made by MSMEs and without demands, MSMEs will not be taking up more loan from the government, even though it already seems insufficient. One of the major demands from MSMEs from governments was to pay their employees salary for the month of April as it has resulted in a poor relationship between labor and owners but this has remained unaddressed in the current package
Should this be even called a relief package because relief isn’t paid back to governments with interests, this is rather a loan package for atmanirbhar Abhiyan? An Abhiyan for which labor laws have already been diluted and land reforms are being made as FDIs have complained to the Indian government about the strict labor laws. These reforms will only allow foreign companies to set up in India, and the production in India means lower selling price of foreign products, this will not be helping the local brand become global.
The government of a country that has top economists with the likes of Abhijit Banerjee, Raghuram Rajan, Manhoman Singh misses consulting for a relief package and the media chooses to beat the drums for the government rather questioning the vision of package and adequacy of the funds provided under various schemes.
The words are there, the figures are there, but the vision is missing.