Where the relief and stimulus package falls short

Sunday saw the announcement of the final instalment of India’s ₹20 lakh crore relief-and-stimulus package to provide succour to individuals and businesses hit hard by the coronavirus disease (Covid-19) and the lockdown, and to revive an economy that will shrink this year — by as much as 5.2%, according to one estimate.

The need of the hour was money in hand. It’s the reason the $2-trillion stimulus package announced by the United States (US), at 10% of GDP which is almost the same proportion as India’s (the ₹20 lakh crore works out to a little less than 10% of India’s GDP), is a good benchmark. Almost $600 billion of the $2 trillion is payments to individuals, and leaving aside the unemployment benefits and the forgiving of student loans, an estimated $300 billion in cash was part of the pot. Another $340billion was targeted at state and local governments, much of it for their Covid-19 response. On top of this $2 trillion CARES (Coronavirus Aid, Relief, and Economy Security) package was roughly another $800 billion in emergency fiscal measures and $4 billion in monetary measures. It isn’t just the US; even the United Kingdom’s package has a significant fiscal component — including wage support for self-employed and salaried (but furloughed) employees for three months (up to as much as £2,500 a month).

Interestingly, many in the US believe that more is needed. To be sure, the US has been ravaged by the pandemic. India is relatively better off. Even if that were to be factored in, the fiscal cost of India’s package is just around a tenth of the ₹20 lakh crore. There haven’t been substantial cash handouts, especially to the middle-class (which got no cash), even though it holds the key to reviving discretionary spending. There hasn’t been either income support or wage protection for businesses, and this could result in a wave of layoffs across India Inc, further depressing birth sentiment and demand. Nor has there been any cash directed at the states, although the Centre has pointed out that they have so far borrowed only 14% of the amount they are authorised to (most states are chary about borrowing because their revenue has taken a hit). To be sure, the package has included a flurry of announcements on reforms, including some radical ones. Some of these were previously announced but not implemented; but others are new, and welcome. However, these are unlikely to immediately improve the financial situation of both individuals and companies — which is what the primary aim of any stimulus package should be.

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