OVERVIEW: Decoding the Atmanirbhar Bharat Financial Package

Introduction

The coronavirus pandemic induced lockdown has hit triggered one of the worst economic crises in history. Countries have struggled to get their economy back and track and, for the same purpose, have declared certain measures to boost the economy. The Indian Government has announced "Aatmanirbhar Bharat Abhiyan" package of an estimate of a whopping 10% of the GDP, which, as its name suggests, aims to create a self-reliant India. The primary focus under this package was on land, labor, liquidity, and laws.

A large part of the Atmanirbhar Bharat Package consists of repackaged policy or relief measures undertaken by the Government long before the mega package was announced. About 1.7 Lakh crores relief package was announced under the Pradhan Mantri Garib Kalyan Yojana on 26 March 2020.[1] On 24 March 2020 and on 17 April 2020 about Rs.3.74 lakh crores was injected by the Reserve Bank of India to enhance liquidity in the financial system by sanctioning Rs 50,000 Crores towards T-LTRO and divested it's an entire share in NABARD and NHB to refine these institutions.[2]

Release of pending funds

It needs to be seen whether all refunds for stand-alone years are issued in cash or are adjusted against any tax demand reflected as outstanding in the income tax department records. If the returns are to be adjusted against any pending tax demands, the same should be restricted only to undisputed tax demands. Adjustment of refunds against disputed tax demands will defeat the purpose of the announcement and reduce the taxpayer's attractiveness to opt for the Vivad Se Vishwas Scheme.

Real Fiscal Cost of the Package

On a closer look, it appears that the stated cost of the package may not be 10% of the GDP, as advertised. It is because the reforms are mostly aimed at enhancing the liquidity of enterprises, and that is a job which the banks and financial institutions do base on government policy hence hardly putting any pressure on the Government's exchequer. The cumulative actual fiscal impact is only around Rs 1.14 lakh crores, which accounts for only 0.6% of GDP.[3]

Collateral free automatic loans

While the 100% credit guarantee cover is likely to instill greater confidence in banks/NBFC to extend financial facilities to the stressed MSME Sector and the MSME Sector stands to benefit greatly by securing soft loans and without any guarantees/collaterals; would reduce costs and help significantly in kick-starting the business. It appears that the Government has missed a step in excluding enterprises that have not borrowed from the banking system yet and therefore do not have established credit limits.

Liquidity for Power distribution companies

Government to lend monies through Power Finance Corporation and Rural Electrical Corporation (in two equal installments) against State guaranteed receivables owed to DISCOMs. DISCOMs in turn to deploy the funds to repay their dues to Transmission and Generation companies. This is aimed at alleviating the liquidity pains of DISCOMs as customers will struggle to pay up. However, it fails to address long term issues of efficiency and fiscal profligacy at such DISCOMs, which continue unabated.

Reduction in EPF contributions

Again one move where the net cost to the Government is likely to be minimal, the Government has allowed for a reduction in the Statutory Provident Fund (SPF) contributions for both employee and employer from the existing 12% to 10% for all establishments (except Central/ State Public Sector Units) covered by EPFO for the next 3 months (i.e. up to August 2020). Employers will now have to make up the shortfall in their contribution to employees, thus maintaining the employees’ CTC. Employees can also opt to continue contributing at a higher rate. But in the bargain, employers will be left with no real benefit from the measure.[4]

Migrant Workers

The Government sanctioned funds of Rs 3500 Crores to feed food to the migrant workers, special credit facilities for street vendors with initial working capital of Rs10,000 per vendor, Rs 30,000 crores as an additional emergency working capital fund for the farmers through NABARD and also the long-awaited One Nation One Ration Card. Along with this, a scheme of Rs 2 lakh crores concessional credit boost under the Kisan Credit card was also brought into place.

Defense Production

The Government provided a boost to defense manufacturers and promoted indigenous research and development. Banning of imports of certain defense products will soon be notified by the Government. The FDI limit in defense manufacturing has been raised from 49% to 74%.By these measures, companies manufacturing these products will benefit in both ways get FDI and also have demand hence increasing Self-reliance.[5]

Conclusion

The Centre has totted up a mega figure of ₹20 lakh crore by lumping together fiscal and monetary measures, the latter being in the nature of credit guarantees and liquidity infusions into banks and other financial sector institutions rather than the economy in real sense. [6] The package provides by the Government only serves as a purpose to enhance the liquidity of the said institutions and does not come as a stimulus in any way. The package hardly costs anything to the Government's bankroll. Moreover, most of the policies announced by the Government had to be carried out by banks and financial institutions, it is not going to cost much to the Government, in fiscal terms.[7]

What the need of the hour is a genuine monetary infusion of ₹8-10 lakh crore in fiscal terms with a focus towards cash transfers, infrastructure spending, and one-time settlement of industry wages is what the economy needs today.[8]

What the country needs is to be locally self-sufficient and undergo a phase to indigenization, and that can only be achieved through policy changes that de-prioritize the interests of multinational corporations and embrace an approach to industrialization that improves local businesses, drives job growth and supports public research and innovation.[9] The slogan "Vocal for Local" should be further promoted by the Government by curbing products from the international market where ever practical to ease the burden of competition from internationally produced products and then give attractive opportunities and financial support for indigenously produced goods to make it a real success for India.

{Author: Harikesh Narang}

REFERENCES

[1] Unknow, ‘Reserve Bank Announces Targeted Long-Term Repo Operations 2.0 (TLTRO 2.0)’

(Reserve Bank of India, 17 April,2020)

<https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=49689 > accessed 27 May 2020

[2] Unknow, ‘Reserve Bank of India divests its share in NABARD and NHB '(Reserve Bank of India, 24 March,2020)<https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=46885> accessed 27 May 2020

[3] Unknow,' NEW PACKAGE AND FISCAL DYNAMICS '(State Bank of India, 14 May,2020)

<https://sbi.co.in/documents/13958/3312806/Ecowrap_20200514+%281%29.pdf > accessed 28 May 2020

[4] Anand Kalyanaraman, 'EPF contribution cut: Labour Ministry notification adds a twist to the tale.'

The Hindu Business Line (New Delhi, 20 May,2020)

[5] Kavita Chacko, Rucha Ranadive & Sushant Hede, ‘Central Government’s

Economic Stimulus - Part 4 ‘(CARE Ratings , 16 May 2020) < http://www.careratings.com/upload/NewsFiles/SplAnalysis/Central%20Government%20Economic%20Stimulus%204.0.pdf > accessed 29 May 2020

[6] Unknown, ‘‘Atmanirbhar Bharat’ does not adequately address the deep crisis at hand’

The Hindu Business Line (New Delhi, 18 May,2020)

[7] Manan Sabnavis & Sushant Hede, 'Central Government Economic Stimulus - Part II'(CARE Ratings, 16 May 2020)<http://www.careratings.com/upload/NewsFiles/SplAnalysis/Central%20Government%20Economic%20Stimulus%20-%20Part%20II.pdf > accessed 29 May 2020

[8] Unknown, ‘‘Atmanirbhar Bharat' does not adequately address the deep crisis at hand.'

The Hindu Business Line (New Delhi, 18 May 2020)

[9] Surabhi Agarwal, Bobby Ramakant and Sandeep Pandey, ''Self Reliance and FDI dependence.''

The Indian Express (New Delhi, 28 May 2020)