While some of the relief measures announced by the FM are just financial jugglery, the remaining items offer some concrete benefits to the poor
In his address to the nation on March 19, Prime Minister Narendra Modi announced the setting up of an Economic Response Task Force (ERTF) under the Union Finance Minister (FM), Nirmala Sitharaman to come up with a package of measures to alleviate the problems faced by industries, sectors, businesses and workers due to the economic disruption caused by Covid-19.
The most seriously affected sectors, such as aviation, transport, hospitality, tourism, retail, micro, small and medium enterprises (MSMEs), are looking for a host of concessions such as additional interest subvention (for instance, MSMEs are demanding three-five per cent over and above the two per cent that they are already getting), moratorium on repayment of loans and interest dues, relaxing the repayment schedules and liberalising the norms for declaring a loan a non-performing asset (NPA). At present, a loan is classified as a NPA if it is not paid within 90 days and now the demand is for increasing this to 180 days.
The industries are also seeking reduction in policy rate, the interest rate charged by the Reserve Bank of India (RBI) on loans given to banks, by 50 basis points and reduction in the Cash Reserve Ratio (CRR) to inject more liquidity into the economy and so on.
However, the worst-affected are tens of millions in the “informal” sector such as street vendors, craftsmen, construction workers, domestic workers, agricultural labourers, the self-employed and so on. They are in need of immediate financial relief and in substantial measure. What should be the relief amount per person? What will be its impact on the Budget?
India’s working population is about 40 crore. Of this, 94 per cent or 37.6 crore are in the informal sector. The national minimum wage of an informal worker is approximately Rs 175 per day or Rs 4,550 per month (26 working days) and when s/he doesn’t get to work, s/he loses this much income. For 37.6 crore workers, this comes to about Rs 1,70,000 crore per month. If the lockdown continues for three months, the loss will be Rs 5,10,000 crore. This should be the quantum of Direct Income Support (DIS). What has the FM offered?
On March 24, for the industries and businesses, Sitharaman announced reliefs which are largely “procedural.” These include extending the date for filing returns (income-tax, Goods and Services Tax, customs, excise and statutory filings under the Companies Act), reducing interest chargeable on delayed payments, exemption from penalty, increasing threshold of insolvency filing and so on. She also indicated that the financial package for affected sectors will be separately notified based on recommendations of the ERTF.
On March 26, apart from providing insurance cover worth Rs 50 lakh for doctors, nurses, paramedics and sanitation workers, she announced the PM Gareeb Kalyan Scheme (PMGKS) aimed at providing immediate assistance — in both cash and kind — to millions of poor. The scheme entails a total expenditure commitment of Rs 1,70,000 crore.
The package includes giving five kg of rice/wheat per person per month for “free” to around 80 crore people through the Public Distribution System (PDS) plus one kg of preferred and region-specific choice of pulse per household for three months (this is in addition to the five kg of rice/wheat already being given to them per month); ex-gratia of Rs 500 per month for three months to Women Jan Dhan account holders to benefit 20 crore women; release first installment of Rs 2,000 under the PM-KISAN scheme to 8.69 crore farmers in the first week of April; an ex-gratia amount of Rs 1,000 for the next three months in two instalments to three crore widows and senior citizens; free gas cylinders to 8.3 crore women Ujjawala scheme beneficiaries for three months; and an increase of Rs 20 in wage rate of workers under the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) to benefit five crore people.
For construction workers, State Governments have been directed to use the welfare fund for building and construction labourers (it has around Rs 31,000 crore) to help people face economic disruption because of the lockdown.
Likewise, the funds available under the District Mineral Fund (DMF) can be used for testing activities, medical screening and providing healthcare to fight the pandemic.
Besides, under the Deen Dayal National Livelihood Mission (DDNLM), Women Self-Help Groups (SHGs) will get collateral-free loans up to Rs 20 lakh (up from Rs 10 lakh earlier) to benefit 630,000 SHGs.
For the organised sector, the Government will pay the Employees’ Provident Fund (EPF) contribution of both the employer and the employee or 24 per cent for three months. However, this is only for those establishments with up to 100 employees, 90 per cent of them earning less than Rs 15,000 per month.
Further, the Employees’ Provident Fund Organisation (EPFO) regulation will be amended so that workers can withdraw up to 75 per cent for contingency expenditure as non-refundable advance or three months of wages in advance, whichever is less. This is expected to benefit 4.8 crore workers.
Of the 10 items, payment under PM-KISAN is merely a rehash of what is already being done. The proposed relief for construction workers and healthcare from the respective funds is not amenable to any precise quantification.
The increase in loan limit for Women SHGs is not a cash transfer or grant. The 24 per cent contribution to EPF may sound attractive but is hamstrung by a rider; thus, even if the number of employees earning less than Rs 15,000 per month is 89 per cent of the total, the concerned establishment won’t be eligible. The change of EPFO regulation merely allows the worker to withdraw his own money.
The remaining items offer some concrete financial benefit. Let us attempt to arrive at a number by putting relevant pieces together.
For a woman Jan Dhan account holder, who is also the head of the household, the value of 35 kg rice (for a family of five people at five kg per person) and one kg pulse is Rs 955 (market price of rice: Rs 35 per kg and pulse Rs 80 per kg); Rs 500 ex-gratia; Rs 500 value of subsidised gas cylinder and Rs 600 increase in wage under MNREGA. All put together, the benefit comes to Rs 2,555 per month.
This is a good sum, though far below the amount required to offset the loss of income resulting from the lockdown. Besides, an overwhelming numbers of workers in the informal sector will be left out; their benefit may at best be restricted to five kg of free wheat/rice and one kg pulse (that too subject to the capability of the existing distribution network to supply these grains to the needy).
However, we should also not be oblivious of the fiscal implications of even a limited package. The nerve-shattering Covid-19 has come at a time when the Government is staring at a big shortfall in tax collection. As it is, at Rs 15,75,000 crore, the target for 2020-21 (increase of 31 per cent over the likely actual during 2019-20 at Rs 12,00,000 crore) — fixed prior to the crisis — was highly unrealistic. Post-crisis, this may look like daydreaming. With the inevitability of global recession and lack of market appetite, the target for proceeds from disinvestment of its shareholding in Public Sector Undertakings (PSUs) i.e. Rs 2,10,000 crore (a major source of non-tax revenue) is clearly out of reach.
Some experts have suggested that the Government may relax the fiscal deficit (FD) target for 2020-21 by one percentage point to release about Rs 2,00,000 crore. But this can’t be viewed in isolation from the existing fiscal position. If, deferred subsidy payments (DSPs), extra-budgetary resources (EBRs) are included, already the FD should be six per cent (as against the budgeted 3.5 per cent). The steep decline in both tax and non-tax revenue (courtesy the Coronavirus) will increase it further.
On top of this, a further relaxation of one per cent to meet expenditure commitments under PMGKS will lead to a fiscal catastrophe. We may defeat the Coronavirus eventually but the vast majority of the poor will be crippled by resulting high inflation (for the first time in decades, the Centre is asking the RBI to buy its bonds which in plain words means “print new currency” and is inflationary), high interest rates, high cost of capital to industry, plummeting real wages and so on.
All this points to a dire need for expediting reforms in all crucial areas viz. food, fertilisers, fuel, power, irrigation, credit, taxation, banking and PSUs so as to result in a “sustainable” reduction in spending and achieve the desired buoyancy in tax revenue. But, for now, it seems all reforms have been put in the deep freezer.
(The writer is a New Delhi-based policy analyst)
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