Prime Minister Narendra Modi has turned the human crisis of Covid 19 into an opportunity to give stimulus to the country’s economy, and extend an impetus to his oft repeated pet projects – “Make in India” “Vocal for local,” and “Think globally but act locally” – to make India a self-reliant country as an emerging global economic power. By announcing Rs. 20 lakh crore economic stimulus package, he has given a definite hope to the country to put the long lockdown-hit economy back on growth track.
In fact the stimulus package is an advanced follow-up step to the economic liberalization that was initiated by the then Prime Minister P.V. Narasimha Rao in 1991. Narasimha Rao was credited for initiating bold economic reforms to revive the then sinking Indian economy during those critical times. But for his forward-looking initiative, the Indian economy would have gone into bankruptcy. The India economy then was in such a bad state that it had severe balance of payments crisis. India had foreign exchange worth lasting only for three weeks. The International Monetary Fund (IMF) had forced India to resort to the economic reforms. Consequently, India had to pledge 47 tonnes of gold to the Bank of England and 20 tonnes to the Union Bank of Switzerland and as part of a bailout deal with IMF.
Though the current situation of Indian economy does not seem to be in such dire state, as a preemptive step Modi has announced this massive Rs. 20 lakh crore plan to stimulate it and overcome the all-round loss suffered by the country because of the continuing lockdown. While giving an overview of this ambitious stimulus plan over national television on May 12, the Prime Minister also utilized the opportunity to include a set of economic reforms, which were carefully elaborated in detail in a broad series of announcements subject-wise for following five days in a row by Finance Minister Nirmala Sitharaman, accompanied by several aides representing respective departments. The reforms package, which aims at India’s thrust for self-reliance, is focused on land, labor, liquidity and legal frameworks.
The Prime Minister said that the estimated value of package, which would be 10 percent of country’s GDP, would rest on five pillars – economy, infrastructure, technology-driven system, vibrant demography and demand. The total value of the package included the computed value of 3.2 percent of the GDP, under the programs that were already announced by the Reserve Bank of India (RBI) and 0.8 percent of the GDP under the Garib Kalyan Yojana announced by the Finance Ministry on March 26.
The stimulus package, he said, would cater to various sections that included cottage industry, micro, small, and medium enterprises (MSMEs). The reforms would not forget to help the migrant laborers whose livelihood had been badly affected by the lockdown. Implying to lay an emphasis on his pet “Make in India” call, Modi said: “Every Indian should be vocal for local. Today’s global brands were once local too, but when people there started supporting them, they became global.”
On the basis of broad overview of the economic stimulus plan announced by the Prime Minister, the Finance Minister Ms. Nirmala Sitharaman spoke to the nation in the following five days giving minute details of the plan. Here are the highlights.
Plan to provide liquidity to small and medium enterprises: Announcing a wide range of cash and other incentives to MSMEs, Nirmala Sitharaman on May 13 spoke about providing liquidity to small and medium enterprises and also initiate reforms that would redefine the sectors and encourage the firms to give up their fears of “growing bigger,” thus losing the benefits that were already being enjoyed. She said the package focused on providing cash for the MSME sector, non-banking finance companies (NBFCs) housing finance firms, microfinance companies and reducing tax deducted at sources and tax collected at source rates to ensure more money in the hands of taxpayers.
The other benefits offered for MSMEs included: Rs. 3 lakh collateral-free automatic loans; Rs. 50,000 crore equity infusion through MSME fund; global tender to be disallowed up to Rs. 200 crore; and MSME receivables from the government and PSUs to be released within 45 days.
EPF support: A Rs. 2500-crore Employees Provident Fund support for business workers was extended for a period of three more months; statutory PF contribution of both employer and employee would be reduced to 10 percent each for all establishments covered by EPFO for the next three months; and CPSEs and State PSUs would continue to contribute 12 percent as employer contribution.
Real estate registration: With regard to the Real Estate, the States were being advised to invoke Force Majeure clause under the Rera (Real Estate Regulatory Authority); registration and completion date for all registered projects would be extended up to six months. This might be further extended by another three months based on the State’s situation.
Tax relief to businesses: The pending I-T refunds to charitable trusts and non-corporate businesses and professions would be issued immediately.
Free food grains to the poor, migrants and farmers: The stimulus package announced by Nirmala Sitharaman on May 14 would focus, among others, on the poor and lower middle classes. She said that free food grains for two months would be supplied to the poor migrant workers without ration card and they would also be provided rental housing facility. Also loan schemes would be introduced to small farmers and street vendors. This Rs. 6-lakh crore package would also aim at helping micro, small and medium entrepreneurs (MSMEs).
“One nation, one ration card” system: Under this scheme, Aadhar card would allow its holders to access the public distribution system to draw their quota from anywhere in the country.
Affordable housing: The government would launch a scheme under the PM Awaas Yojana to provide housing at affordable rent to migrant laborers and the urban poor.
Emergency working capital for farmers: Under this scheme, an amount of Rs. 30,000 crore would be set aside as emergency working capital to help the needy farmers through Nabard. Another Rs. 2 lakh crore concessional credit would give boost to 2.5 crore farmers through the Kisan Credit Cards.
Help for middle income group housing: The government would launch a credit-linked subsidy scheme that would be operational up to March 2021 to help the middle income group of people.
Curbs on farm sector removed to help farmers: Nirmala Sitharaman announced on May 15 three important long-pending reforms to restructure farmer-market ties allowing farmers to market their produce without any restrictions. The government also set up a Rs. 1 lakh crore fund to build agri-infrastructure to raise productivity and make the farm sector globally competitive. The new farm policy reforms were part of an 11-point action plan to ensure better returns for farmers.
Far-reaching reforms launched: The important steps included amendment to the Essential Commodities Act 1955 to enable farmers to get better prices; cereals, edible oils and oilseeds, pulses, onions, potatoes to be deregulated; stock limit to be imposed under exceptional circumstances like national calamities; and agriculture marketing reforms would give farmers the market choices.
Central law on farm sector: A Central law would be in the offing to provide adequate choices to farmers to sell their produce at attractive price, and create a barrier-free inter-state trade and a frame work for e-trading of produce.
Fair produce price and quality assurance: A legal framework would be created to enable farmers to engage with processors, aggregators, large retailers and exporters in fair and transparent manner. It would also allow private sector investment in inputs and knowhow.
Greater role for private sector in Defense: In a major policy shift, the Finance Minister on May 16 announced opening of the Defense production, space exploration, civil aviation and atomic energy, power, coal and mining sectors to the participation of the private sector.
Defense production: As part of private participation in the defense production, a list of weapons/platforms would be notified for import ban and for indigenization of import spares; corporatization of Ordnance Factory Board and stock market listing would improve functioning of 41 ordnance factories; and the limit for Foreign Direct Investment (FDI) would be raised to 74 percent from the present 49 percent.
Space exploration, civil aviation: The Finance Minister said that the private sector would be a “co-traveler” in the India’s inter-planetary and outer-space exploration and would open up facilities of the Indian Space Research Organization for its use. In the area of civil aviation, she said that curbs on utilization of Indian airspace to be eased to boost civil flying. This would fetch Rs. 1,000 crore a year. Six Airport Authority of India (AAI) airports would be handed over for being run in public-private partnership, and aircraft maintenance centers would be facilitated in India.
Privatization of power sector: Nirmala Sitharaman said power departments in the Union Territories would be privatized for better service and efficiency, putting the issue of privatization as a key element of power sector reforms. She also outlined the contours of the revised tariff policy, saying it would put “consumers first” by laying down standards of service and penalty on discoms in case of failure to meet those standards, ensure adequate supply and penalty for willful blackouts by utilities.
Privatization in coal and mining sectors: The Finance Minister said that the government would immediately offer 50 coal mines for commercial mining by the private sector without end-use restrictions, thus removing one of the last vestiges of the license-quota raj of 1970s. The move would boost domestic production and reduce coal imports resulting an estimate saving of Rs. 1.7 lakh crore. Private investment in new mines would help create thousands of jobs and big earnings for coal-bearing states.
She also said that in the mining sector, the government would auction 500 mineral mines, remove the distinction between the captive and non-captive blocks and rationalize stamp duty as part of reforms to stimulate the sector identified as one of the major generators of direct and indirect employment.
Limiting public sector role and push to job generation: Concluding her presentation of the economic stimulus package aimed at strengthening the country’s economy affected by Covid-19 pandemic, Nirmala Sitharaman on May 17 said that the government was committed to limit the role of the public sector in the economy, and boost the rural job creation by infusing an additional amount of Rs. 40,000 crore into the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The allocation would be in addition to Rs. 61,000 crore already budgeted. The total would be Rs. 1,01,000 crore this year. Besides PSU reforms, she also announced more financial support to States, ease of doing business, opening of more hospitals for infectious diseases, and impetus to education as part of the PM e-vidya for multi-mode access to digital education.
More support to States: Nirmala Sitharaman said that borrowing limits of States would be increased from 3 percent to 5 percent of GDP, for 2020-21 only, linked to reforms. This would give the States extra resources of Rs. 4.3 lakh crore.
Ease of doing business: She announced that the minimum threshold to initiate insolvency action had been raised to Rs. 1 crore from Rs. 1 lakh, which would insulate MSMEs; suspension of fresh initiation of insolvency proceedings up to one year depending on the situation; empowering the Center to exclude Covid-19-related debt from the definition of “default” for triggering insolvency; and direct listing of securities by public companies in a permissible foreign jurisdiction.
Impetus to health: Infectious diseases hospital blocks and integrated public health labs would be provided in all districts and all public health units would manage pandemics.
As Nirmala Sitharaman has been announcing on day-wise, these sops and relaxations, some non-BJP-ruled States and opposition leaders had criticized the government for its certain “unrealistic” stimulus steps and expressed doubts about the success of “impracticable” reforms.
– Contributed by Mr. J.V. Laskshmana Rao, a former National News Coordinator of Express News Service, New Delhi, and former Chief Editor of US-based India Tribune. He frequently travels between India and the US.
Picture Credits: @narendramodi / Twitter (Narendra Modi), ANI (Nirmala Sitharaman)