Indian economy has been on a free fall for some time now. Even before the COVID-19 crisis unfolded on the world, our economy had already been swaying with global headwinds. The off and on attempts made by the government over last few years to resuscitate the economy have been way too far less. Since the pandemic got into a virulent form in India in early March, the Centre has administered a few economic doses. It also pushed the RBI to loosen the purse strings and made money available with banks so that customers could get credit at cheaper rates. However, all such attempts failed to match the might of the pandemic. In this backdrop, the announcement by Prime Minister Narendra Modi earlier this week of an economic package worth Rs 20 lakh crore is a welcome sign. The package combines the first financial stimulus and the liquidity support that Reserve Bank of India has given already. The government had in late March announced fiscal measures worth Rs 1.7 lakh crore while the RBI offered liquidity support of Rs 3.7 lakh crore in March and Rs 2 lakh crore in April. Therefore, the ‘self-reliant India campaign’ might work out to around 60 per cent or Rs 12-13 lakh crore.
Dubbing the mega package as a ‘Self-reliant India campaign’ is a reaction to the new global realities caused by the pandemic. The COVID-19 onslaught has come to the fore the vulnerabilities and inevitabilities of globalization. The government’s renewed focus on harnessing domestic resources for domestic consumption is a throwback to the nationalist economic policies that India had followed in the last century. Also, the ‘self-reliant India campaign’ foretells the swadeshi economic agenda – a main ideology plank of the Rashtriya Swayamsevaka Sangha (RSS). India had opened itself to the global market in 1991 through liberalization, privatization and globalization. However, soon after, the government developed cold feet in chasing global capital, leading to a clamour from various quarters for deeper opening of the economy. Yet, its insularity helped it stand unscathed by the south-east Asian meltdown. The government should ensure that such insularity does not run foul of our obligations under multilateral bodies like WTO. As the package is being spelt out by Union Finance Minister in tranches, not at one go, it is not possible to fully decode its ramifications. A one-time detailing of the policies would have been better as it would have let investors and other stakeholders know what they can expect from the changes being introduced. This would have also reduced the uncertainty that has set into the economy.
The latest fiscal stimulus has been conceived to drive liquidity into the system. A large chunk of the capital has been earmarked for micro small and medium enterprises (MSMEs) and non-banking financial companies, among others. This is because, the MSME sector has been among the worst-hit by the pandemic. A revival of the MSMEs can help revive the job markets. In a good move, the government has announced to stand guarantee for the collateral free loans to MSMEs. This particular move would go a long way in pushing the banks to really open their purse strings which was missing up till now. Liquidity for power utilities, subject to state government guarantees, will also ensure that power generation is not shut down. Here too, the government’s announcement to stand guarantees for the loans will reduce uncertainty. Liquidity has been an issue for these sectors due to the general risk aversion among banks. The government’s willingness to shoulder the credit risk is a welcome move which would go a long way in rebooting the system.