Modi has on multiple occasions highlighted his vision of seeking to make India a key player in the global economy, dispelling fears that the Atmanirbhar move will take India in an isolationist and protectionist direction. As the PM puts it: Atmanirbhar Bharat aims to make in India not just for India, but for the world.
The stimulus packages have leaned on easing entry barriers and laws for privates and consumers, providing liquidity to MSMEs and banking institutions, incentivising urban employment and infra projects, and reforming agricultural laws to help local production and poor farmers. An underlying aim of these packages is to enable India to replace China as the world’s factory.
Stimulus 1.0 (May)
Back in May, Indians confined to their homes were presented with the Rs 20-lakh-crore stimulus package to fight the raging Covid-19 pandemic. The first stimulus announcement, valued at 10 per cent of GDP, was presented in five tranches, each targeting a different set of focal industries and sub-sectors.
The first tranche revolved around funding and loan guarantees for small businesses, non-bank lenders, discoms and salaried workers. It included several big-bang announcements such as Rs 2,500 crore EPF support, Rs 3 lakh crore collateral free loans for MSMEs, and a special liquidity and partial credit guarantee scheme for NBFCs, HFCs and MFIs.
The second tranche shifted the gaze to migrant workers and small farmers with key announcements like ‘One Nation, One Ration card’ as well as plans for free food and rental accommodations for displaced migrants. Furthermore, the govt extended Rs 30,000 crore of additional capital emergency funds for marginal farmers through NABARD.
Agriculture-related measures took centrestage again in the third tranche, which focused on infrastructure projects for agricultural industries like food processing. There were announcements regarding marketing reforms, produce price and quality assurances. This included a Rs one-lakh-crore fund for strengthening farm gate infrastructure, micro food schemes and a proposed amendment to the Essential Commodities Act, which later became one of the contentious issues in the farmers’ protests.
The fourth tranche saw structural reforms in eight critical sectors — coal, minerals, defence production, airspace management, social Infrastructure projects, power distribution companies, space sectors and atomic energy — to drive up local and foreign private investment.
Rs 40,000-crore additional funding to MGNREGS, IBC reforms, decriminalising certain offences under the Companies Act, easing of listing norms, and increasing the borrowing limit for states for FY21 were announced in the fifth tranche.
The five tranches together totaled around Rs 11 lakh crore — the first accounting for Rs 6 lakh crore, the second Rs 3 lakh crore, the third Rs 1.5 lakh crore, and the fourth and fifth together about Rs 50,000 crore. The eye-catching Rs 20-lakh-crore corpus of the stimulus comes after including the Pradhan Mantri Garib Kalyan Package (PMGKP) and earlier measures taken by the RBI of Rs 9 lakh crore.
Mini stimulus 2.0 (October)
In October, the Centre sought to support capital expenditure and consumer demand with a mini stimulus package in the run-up to the festival season, having announced that a more comprehensive set of announcements was in the offing.
The announcements pegged at around Rs 70,000 crore comprising cash vouchers for central government staff in lieu of LTC (leave travel concession) fare, interest-free loans to states, extra capital spending and festival advances to central staff. These LTC funds could be used to spend on items in the 12 per cent GST category — the govt gave cash to employees in lieu of the LTC ticket fare component for buying items attracting 12 per cent or more GST.
However, these announcements still left out a glaringly large portion of Indians employed in the informal sector. “The pandemic was a supply shock for some sectors which then translated into a demand shock to other sectors,” said Parag Waknis, Associate Professor of Economics, Ambedkar University Delhi. “The effect of it, therefore, was asymmetric with the worst impact on the informal sector labour and firms including MSMEs,” he explained.
Stimulus 3.0 (November)
Atmanirbhar Bharat Abhiyaan 3.0 — valued at Rs 2.65 lakh crore — looked to support the emerging economic rebound while tying off the loose ends. These included a boost to formal and rural employment, and capital and industrial spending. Furthermore, income tax rules were relaxed to allow sale of primary residential units of up to Rs 2 crore value below the circle rate to bolster the ailing housing sector.
Most noteworthy, however, were the extension of the production-linked incentive (PLI) scheme to ten new sectors and farm subsidies amounting to Rs 1.46 lakh crore and Rs 65,000 crore, respectively.
Though rural employment in the informal sector got an additional Rs 10,000 crore outlay under the PMGKP and the housing incentives too upped the potential for employment opportunities, the stringent qualifiers for some schemes have continued to be a hurdle.
The job subsidy scheme only focused on formal sector employees earning less than Rs 15,000 per month, while income tax relief for home buyers was only limited to the purchases of houses costing less than Rs 2 crore.
Stimulus 3.0 largely dealt with the labour market, stressed sectors, social welfare, housing, manufacturing, and agriculture, with schemes having a multi-year implementation focus.
The China problem
Beyond the stimulus packages, there was the ‘Vocal for local’ movement, where PM Modi pushed for local production of goods and for making services competitive and viable – PLI being an extension of the same.
Anti-China sentiment firmly became a component of Atmanirbhar policy-making after the Galway Valley conflict, after which a boycott of Chinese products picked up steam. In April, the Centre amended its FDI policy to curb ‘predatory behaviour’ by Chinese investors in Indian companies, and went on to ban around 220 China-based apps in 2020 including PUBG Mobile, TikTok, Weibo, WeChat and AliExpress.
By early August, China’s customs data showed that Chinese exports to India had fallen by 25 per cent as compared to the same period last year. This marked a major event for bilateral trade balance, as India imports goods worth $75 billion from China every year.
Implementation and funding
The Atmanirbhar stimuli have been on the fiscally conservative side, with the Government creating local demand and opening up sectors to boost private investments, production and urban job creation rather than doling out benefits.
According to economists, the govt’s actual fiscal cost for all stimulus packages is under 2 per cent of GDP in 2020-21. Most announcements have relied on privatisation and relaxation of corporate laws like the structural reforms in the companies act, easing of labour laws and the agricultural laws, and removal of entry barriers to spur the economy.
It was “penny wise, pound foolish” for the govt to be fiscally conservative in the first place, said Waknis. “If they could have spent now, then it would have helped the economy to recover faster, boosting tax collection later. Now they are looking at depressed revenues for at least the next 3-4 quarters.”
Recently, Pune businessman Prafull Sarda filed a query under RTI, asking for disbursement details of the Rs 20 lakh-crore package, and was informed that of the Rs 3 lakh crore sanctioned through ECLGS, only about Rs 1.2 lakh crore had been disbursed. “The big question is — where is the remaining Rs 17 lakh crore from the total package, eight months after it was announced?” Sarda asked.
The two points that the govt may have seen as risk factors were inflation and fiscal deficit. Waknis, though, argues that with the economy already down, the risk of inflation seemed unwarranted.
“The prime movers of inflation were food grains and they could have used the huge piled up stocks under PDS to relieve the inflationary pressures if they would have arisen,” he said, adding that the govt could have traded off higher deficit today for a lower one in the future.
What the government can do
When the effect of a shock is asymmetric — with some people being affected more than others — then the relief has to be targeted, and not a general one, according to Waknis. The govt’s response in terms of easing credit did not fit into this category.
“It may have benefited some MSMEs possibly, but the worst-hit were the people who did not have access to formal credit markets. So, what was the point of easing credit then?” he added.
The stimuli could have been in the form of actual cash support, Waknis propounds: “More funding for MGNREGS and launching an urban employment guarantee scheme would have been the best way to stimulate the economy.”