Analysis of government relief package- Explained, pointwise

Syllabus: Indian Economy and issues relating to planning, mobilization, of resources

Introduction

The Indian economy has fallen behind by several years if one looks at the gross domestic product (GDP) numbers, the sectoral value added in manufacturing and construction, or the actual off-take of items like electricity, steel, cement, vehicles, and so on. The principal means for reviving the economy over the next few months has to be a significant boost in consumption and demand.

To revive the Indian Economy, the finance minister has announced a set of relief package worth Rs 6,28,993 crore. These measures chiefly rely on credit easing and other supply-side props that require the mediation of state-run agencies.

What was the need for a relief package?

Health, education, poverty, employment, and environment surveys provide the real metric of progress rather than stock market indices and GDP growth.

  • India’s Debt/GDP ratio rose sharply, from 74 per cent at the end of 2019 to 90 per cent at the end of 2020.
  • The impact of the Covid-19 epidemic and the response in the form of lockdowns have reduced household incomes and restrained consumer demand. One indicator of this is the loss of employment.
  • A recent research report suggests that an additional 75 million people were pushed below the poverty line due to severe lockdown and the associated movement of about 10 million migrant workers.
  • Children from poorer families have suffered a severe loss in terms of education and nutrition, with the loss of mid-day meals for over a year.
  • The latest National Family Health Survey shows a significant deterioration in the proportion of stunted children.
  • The Annual Status of Education Report continues to show the poor outcomes of schooling.
  • The major problems in tax collection: The Controller General of Accounts released provisional revenue and expenditure figures. It points out that the collections of indirect taxes were more than direct taxes, and personal income tax collection exceeded corporate income tax
Major highlights of recent relief package
  • Rs 1.1 lakh crore loan guarantee scheme for COVID affected sectors
  • Additional fund for Emergency Credit Line Guarantee Scheme
  • Credit Guarantee Scheme to facilitate loans to 25 lakh persons through Micro Finance Institutions (MFIs)
  • Financial support to more than 11,000 Registered Tourists/ Guides/ Travel and Tourism Stakeholders and Free one-month Tourist Visa to first 5 lakh tourists
  • Additional subsidy for DAP & P&K fertilizers
  • Extension of Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) – Free food grains from May to November 2021 and Aatma Nirbhar Bharat Rozgar Yojana till 31st March 2022
  • Besides supporting the health sector through a credit guarantee scheme, a new scheme for strengthening public health infrastructure and human resources. The new scheme will focus on short term emergency preparedness with special emphasis on children and paediatric care/paediatric beds.
  • 21 varieties of the bio-fortified crops for nutrition, climate resilience and other traits to be dedicated to the nation
  • Revival of North Eastern Regional Agricultural Marketing Corporation (NERAMAC) and boosting exports through National Export Insurance Account (NEIA)
  • Expansion and up-gradation of Broadband to each Village through BharatNet PPP Model
  • Extension of Tenure of PLI Scheme for Large Scale Electronics Manufacturing till 2025-26
  • New Streamlined Process for PPP Projects and Asset Monetization
Other Government steps to boost economic growth
  • The government expanded the rural employment guarantee and food security programmes.
  • Indian Government also launched many black money-related measures, including demonetization. In the information gathered as part of the demonetization exercise, the number of corporate taxpayers had increased in 2017-18 from 2016-17. So did corporate tax collection in 2017-18.
  • Real Estate Regulation Act: The act provide relief to home buyers and people. Further, It also reduced the incidence of unfair trade practices in the real estate sector.
  • Further, the government increased indirect taxes on fuel products, once in 2014-15 and again in 2020-21. (In this process, tax collection through direct taxes suffered).
Challenges with the recent government relief package
  • Not focused on the demand side: While the measures announced are focused more on the supply side, these steps would take a lot of time to provide faster relief to the economy. For example, the loan guarantees may help the businesses to borrow on favourable terms, but there are hardly any new projects by Indian companies.
  • No direct package for certain sectors: small loans and specific assistance for the tourism sector could help improve credit flows to small firms, and MSME firms. But there was no direct package for sectors such as airlines, airports, malls, offline retail and hotels — which saw a total collapse of their business model.
  • Low fund allotment to economic activity: Rs 1.1 lakh crore loan guarantee scheme for COVID-affected sectors was announced. But this will not be enough as Rs 50,000 crore of this has been allocated to the health sector and Rs 60,000 crore for other sectors.
Suggestions to improve relief package
  • The primary task of government should be to boost the quality and reliability of public services for health and education, provide credible social protection to low-income households, particularly the wage labourers.
    • India needs direct state spending on job-assuring projects. The government can even try out cash transfers, for a quick and comprehensive demand boost.
  • Direct economic stimulus measures such as tax cuts for individuals and industry would have helped to prop up the Indian economy, which was hit hard by the lockdowns across several states.
  • To improve the economic policy, the government should set up a sensible, stable, and predictable structure of taxes, tariffs and regulations and leave the rest to the market.
  • Reduce indirect taxes on fuel: To wean oneself off the reliance on fuel taxes is not easy because both state governments and the Centre depend on them for revenue. So, India needs to bring in fuel under the GST regime
    • In the short run, the government can provide relief to households below specified income thresholds through coupons that can be exchanged for fuel.
    • In the long run, the Centre could initiate a study on the cascading effect of fuel taxes and the efficiency, growth and revenue gains that could accrue if duties are dropped to reasonable levels.

Sources: The Business Standard (Article 1, Article 2), Livemint (Article 3 and Article 4)

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