Government slipped by not focusing on demand: analysis
Now that the details on the launch of the Rs 20 lakh crore package are complete, several questions arise. While the government claims this represents 10% of GDP, the exact proportion of the stimulus, the impact of the ads on vulnerable sectors of the population and sectors in distress, and whether the package is enough to revive the economy, deserves scrutiny. critical.
Broken down, the direct, visible and quantifiable fiscal injection can be around Rs 4 lakh crore, just 2% of GDP, if that is so. Government figures accept that 50% of the Rs 20 lakh crore figure equals monetary support, including loan facilitation and better incentives to lend.
How much will farmers, migrant workers and daily wage laborers get in their bank accounts, despite food distribution and loan moratorium? What is the nature of tax incentives, tax breaks, and exemption from legal fees for individuals and businesses? Can micro, small and medium-sized enterprises (MSMEs) wait for an interest exemption to increase income?
These questions become relevant because while actual tax incentives, when granted, will ease the burden somewhat, they are unlikely to ease the setbacks in consumption patterns that will take relatively longer to recover. The fundamental problem in today’s economy is the lack of consumption and demand. People need money to use.
Therefore, most schemes must be linked to the direct consumption of goods and services. But the inherent dangers (savings and leaks) must be avoided. All incentives must be oriented towards employment and fixed costs. Millions of people are expected to be unemployed and returning to work and supporting them in the meantime is critical.
For this, we need an equitable distribution and verification of delivery to the intended class. Income-based distribution must be made by paying funds into Jan Dhan’s accounts. In this, it is crucial to pay a progressively greater stimulus to the lower income groups. The Marxist creed “of each according to his ability, to each according to his needs” is apt at that time.
But this has not been done. Instead, the government has put forward a series of measures. Let’s examine these. The effectiveness of unsecured loans of up to Rs 3 lakh crore or government guarantees is questionable when it comes to those units that are reeling under debt. They will continue to be liabilities on the books, capable of being reimbursed and, therefore, can hardly be classified as part of the fiscal stimulus.
Payment of outstanding wages during the closing period is a major concern. The Chancellor of the Exchequer in the United Kingdom, Rishi Sunak, announced the Coronavirus Job Retention Plan for workers, which was equivalent to paying 70% of their wages for about a quarter of workers. Regardless of scale, the concept requires urgent implementation in India.
Another set of announcements is equivalent to modifying an old policy or amending it in the medium or long term, when it is too late. All of this seems to do nothing for sectoral victims, eagerly awaiting direct injections. This includes airlines, the hotel sector and daily wage earners. By contrast, the United States announced a multi-million dollar package for the airline industry, and Singapore did the same for the tourism industry. Here there are no corporate tax / income tax (I-T) exemptions or even interest exemption. Reducing the tax deducted at source (TDS) by 25% is not even cosmetic, without a corresponding cut in I-T rates.
The government’s well-intentioned policy of purchasing below Rs 200 million without global tender, as part of a self-sufficient nationalist India, may raise legal eyebrows for violating World Trade Organization rules and may have a detrimental effect on the reciprocal foreign direct attraction. investment.
There can no longer be an indecision regarding the fiscal deficit. The Fiscal Responsibility and Budget Management Act, 2003, should be amended to allow a 2% violation and, if necessary, money for genuine tax injections should be printed for specific sector victims. These are not normal times and fiscal prudence is not an immovable principle. You need flexibility and innovation commensurate with the hazard. War is not won with stereotypes, textbook responses, and Covid-19 is nothing less than war.
In India, there is always a great risk of leakage and misappropriation. In addition to specific mechanisms, such as direct benefit transfer and Aadhaar, special forces comprising the private sector, legislators, economists, accountants, and researchers must monitor disbursement through state schemes. Courts should remain vigilant, albeit as instruments of last resort, beset as they are with inherent delays endemic to the system.
Cooperative federalism during pandemic emergencies must be reconfigured. The amount of support that state governments receive in the form of fiscal support, despite their political affiliations, requires the political collaboration and maturity that seems to be lacking today. While everyone realizes that you can’t do everything at once, taking big, clear and concrete steps in the right direction is the way to go. The government’s motto: sabka saath, sabka vikas – You need to be linked to the former Prime Minister of Great Britain, Lloyd George’s famous warning: “Don’t be afraid to take a big step if you are instructed to do so. You cannot cross an abyss in two small jumps.”
Avishkar Singhvi is an advocate on the Supreme Court.
The opinions expressed are personal.