The financial package, amounting to Rs 20 lakh Crore and claimed to be 10% of the GDP was announced by the Prime Minister with much fanfare. Yet when details were announced by the Finance Minister, in the consecutive days, no substantial or even cosmetic relief was found for the masses. Masses which includes those who are struggling against hunger to survive in the lock down, without a plan for their lost livelihood and are now forced to return back to the familiarity of their villages and community networks.
The package came more as a set of policy reforms and monitory policy announcements intended to move towards the next stage of reforms as demanded by the international finance capital and their corporate handlers / beneficiaries in the state. These include opening up of the economies further for foreign direct investments, power sector reforms, ease of doing business, rolling back labour laws known as labour reforms and the like.
These reforms like the first set of reforms came without a national consensus pushed by international finance and their institutions. While the first set of reforms came with the balance of payment crisis, the present reforms concealed in the slogans of ‘Atma Nirbar Bharat’ are again coming when a near emergency exists with no political debate either in the parliament or among the society and its various actors.
The lock down and subsequent lock downs resulted in various communities, labour organisations who lost their livelihood and jobs such as migrant workers, fishing communities, farmers and agricultural laborers, street vendors, associations of MSMEs, demanding a financial package to make up their losses. The government responded with a package of 1.7 lakh crores including cash transfers to Jan Dhan accounts, free cooking gas under Ujwala scheme, insurance for front line health workers etc. which were subsequently added in the next package announced in 5 tranches which was claimed to be for 20 lakh cores and about 10% of the GDP.
The packages announced first by the Finance Minister and then by the Prime Minister as a response to the inadequacies of the first one did not address the massive job loss particularly of migrant labourers and their subsequent deprivation since the lock down or the crisis the economy have fallen into without any creative ideas of supporting the vulnerable and revive the economy.
The crisis as many economists pointed out, is a crisis of demand and to spur demand, immediate measures like income transfer to the people would be a best way, which will not only fight hunger but also increase in demand of commodities. The package failed to address this issue, though an allocation of Rs 1500/- for Jan Dhan account holders in three equal installments and Rs 1000/- for senior citizens in two installments was announced. The first installment of Rs 500/- is what was translating in the ground which was quite inadequate as various groups like fishers and workers were demanding Rs 10000/- as an immediate relief. The same demand was also raised by the street vendors to give Rs 10000/- or equal a cash grant for working capital rather than as a loan from commercial bank. This was recommended by economists and activists including the likes of Abhijit Banerjee, Jayati Ghosh, Prabhat Patnaik, Harsh Mander. While Abhijit Banerjee recommended for cash transfer to the poorest of 60% of its population and waving off of loan payments for small business in June quarter, Jayati Ghosh , Prabhat Patnaik , Harsh Mander recommended a cash transfer fo Rs 7000/- for three months for 80% or the population.
India negotiated a development policy loan for ‘Accelerating India’s COVID-19 Social Protection Response Program’ with World Bank and some of the benefits announced are shown as prior actions to obtain the loan and these include:
(a) increase in the benefit levels for MGNREG
(b) allocation of LPG and gas cylinders for below-poverty line households for three months through UJJWALA
(c) provision of additional allowance for elderly, widows and disabled through the NSAP
(d) triggers cash transfers to women bank account holders under the PMJDY
(e) provision of free food rations for a three-month period delivered under PMGKAY’s public distribution system
(f) special health insurance scheme for health workers providing essential care/medical services to COVID-19 patients etc.
Development Policy loans have strings attached in terms of a neo-liberal agenda. These are loans given by the World Bank on the condition of policy changes, which are promised by a country and in line with the Country Partnership Framework for the country. The formal and informal discussions with the World Bank in this case as in the other was never discussed in the parliament with people’s representatives or with the society at large. Many of the reforms, which were announced in the financial package, are directly from the reform book of International Finance Institutions who have been demanding a rollback of labour regulations, environmental regulations, power sector reforms and relaxation of the land acquisition laws.
The financial package saw a plethora of reforms being announced by the Finance Minister following the prescriptions of these institutions, which are being imposed, on the states as conditionality for relaxing the FRBM norms on further lending by the states. The increase in borrowing limits of states in the financial package is linked to reforms like Ease of Doing Business, reforms in power sector and urban local bodies etc., which are undermining the federal structure of the Constitution of India. The state governments being the front-line warriors in the fight against the virus is under considerable financial stress. With shrinking revenues and non payment of dues from center, states needs direct financial assistance and autonomy on where to spend the money instead, are being forced to change their policies in exchange for relaxation for further credit.
One does not understand how power sector reforms finds place in the Covid relief package, these reforms termed by the World Bank as the ‘unfinished agenda’ have been announced during this distress with an expectation that people will not stand up against such measures. This includes privatisation of distribution companies in Union Territories, progressive reduction in cross subsidies etc.
The Liquidity Injection for DISCOMs of 90000 crores also seems to be a move which would benefit private generators and distributions companies as they are to be exclusively used for the payments to the private generators and central generating station and not for dues payable to state sector power generators. This is meant to be a loan from REC and PFC. According to REC interview in Financial Express, loan is to be backed by state government guarantee and all the state discoms may not come forward for the loan and the amount ultimately to be lent may be lower. This is in continuity with the changes in Electricity Act through commandment drafted at the time of lock down and the Atal Distribution System Improvement Yojana (Aditya).
The financial package as the next phase of reforms is pushing for more privatisation whether it is for the rental housing scheme, airports, power distribution, mineral sector or space activities. The increase in the viability gap funding to 30% in social infrastructure projects is a prelude to make PPP viable with more and more risks and financial commitments coming from public finances. The reforms are building towards a key reforms which and financial allocations pushing for privatisation and reforms which favour corporates and business than the toiling masses even at the time of huge employment / livelihood loss to the working classes.
The financial package announcement by the Prime Minister with a promise of 10% of the GDP raised expectations of many, however tuned out to be a mere statistic with many economists arguing that the actual budgetary expenditure is less than 1% of the GDP. Many announcements were merely repackaging of existing programs and announcements made in the budget and not new allocations and priorities like the Pradhan Mantri Matsya Sampada Yojana (PMMSY), National Animal Disease Control Programme, setting up of Animal Husbandry Infrastructure Development Fund, promotion of Herbal cultivation, Bee keeping initiatives etc.
The financial package for MSMEs which employ 11 crore people, and make up for about 45% of the country’s total output was about 3 Lakh crores. However, it did not entail any direct support but announcement of new loans which need to be paid back rather than any separate financial measure. The industry association however identifies non-payment of its dues by the government which runs upto 5 lakh crores as a major concern. The revision of MSME classification norms are also questionable. The earlier classification of micro as investments below 25 lakh for manufacturing and 10 lakhs for services was changed to investment below 1 crores taking away the distinction between manufacturing and services altogether. This may not create a level playing ground to artisans, village industries etc which are operating at a smaller scale.
The use of CAMPA funds for employment generation in the financial package has also been questioned by the tribal rights activists who have pointed out that compensatory afforestation is not friendly to tribal/adivasi communities and causes double deprivation by allowing organised deforestation by diverting forest land for non-forest purposes without forest dwellers consent and dilutes the provision under the Forest Rights Act as stated by the Campaign for Survival and Dignity. Like the other provisions, the funds are not coming from the budget but from CAMPA funds.
The so called relief to middle class has turned into a hoax as the package included pending income tax refunds to charitable trusts and non corporate businesses and professions. One fails to understand how this could be added to the package at all. The announcement of EPF support for employers and employees is part of an ongoing scheme from 2016 and budgeted item and not any new scheme where the government pays the employer’s contribution. This is however limited to those establishments which have upto 100 employees and 90% of them earn less than 15000 per month and with a mandatory Aadhar card for workers. This scheme earlier was controversial with massive corruption with more than 80,000 companies being found duping the system with about 9,00,000 ineligible beneficiaries.
The second package announced with much fanfare on closer examination finds very little budgetary support especially for the poor and the marginalised and have ignored the needs of the hungry. It seems that the government is not spending from its funds to show its commitment to fiscal discipline due to the fear of rating agencies downgrading the ratings. Credit rating agency Fitch had earlier warned that any fiscal stimulus package could affect its sovereign rating given the economies fiscal situation. Moody another agency had stated that a downgrade is likely if India’s “fiscal metrics” deteriorate materially, and future economic growth doesn’t originate from institutional or economic reforms.
There is little in this financial package which is translating to help the people in distress which would have changed the situation in the ground. And it is yet to be seen how much of the loans announced and promised will be translated in the ground and weather the banks will be extending the loans like the loans announced for the street vendors. Banks have been safely parking money with the RBI due to lack of demand settling for smaller rates of interest. It is yet to be seen what will happen to the banks if there are major uptakes of loans and it turning NPA due to the economic condition. Those very people who want more loans from public sector banks then will call for privatisation in the name of efficiency!
The financial package fails to identify the problem which is causing economic depression and fails to give relief to the affected people in the short run. It is pushing for reforms and opens up the economy to the agenda of international finance institutions and Indian corporates while the ordinary India, whether it is a laborer, adivasi, street vendor, migrant worker continues to face hunger and starvation.