Stimulus may offer cash aid to poor, credit for industry

The effort will be aimed at transforming India beyond a potentially lucrative consumer market to one in which investors share value with its people and create jobs.

The federal cabinet is set to approve a comprehensive economic stimulus package on Wednesday that would offer cash support to the poor and credit guarantees to industry and contain far-reaching stimulus measures for sectors ranging from agriculture to banking and insurance, two officials aware of the development said.

Migrants coming from Maharashtra board a truck to reach their native places in Uttar Pradesh and Jharkhand, amid the ongoing COVID-19 nationwide lockdown in Bhopal on Tuesday.(PTI Photo)

The effort will be aimed at transforming India beyond a potentially lucrative consumer market to one in which investors share value with its people and create jobs.

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After approval by the cabinet, at a meeting chaired by Prime Minister Narendra Modi in the morning, finance minister Nirmala Sitharaman will announce components of the economic stimulus package later in the day.

Modi said in a televised address to the nation on Tuesday night that the package, together with earlier announcements made by the finance minister and the Reserve Bank of India, would be worth about Rs. 20 lakh crore, equivalent to about 10% of the nation’s output of goods and services.

The Prime Minister said every Indian had to become “vocal for their local”, not only to buy local products, but also to promote them proudly “We must make the local as a mantra of our life...The global brands were sometimes also very local like this. But when people started using them, started promoting them, branding them, felt proud of them, they became global from local products,” he said.

“The announcement [by PM] beats most optimistic estimates. Reflects the seriousness of the challenge and resolve of the government to make the crisis an opportunity for India,” said Nilaya Varma, co-founder and CEO of consulting firm Primus Partners.

The new measures to be announced by Sitharaman are expected to cost Rs. 16 lakh crore, according to the two officials cited in the first instance, who spoke on condition that they wouldn’t be identified.

Policy proposals that will be put up for cabinet approval include raising the foreign direct investment (FDI) limit in the insurance sector from the current 74%, reducing the government’s equity stake in public sector banks from at least the 51% it is required to maintain in them, and labour law changes, the officials said.

“The purpose is to position India an as important investment destination instead of an earlier brand positioning that it is a lucrative market with 300-million strong middle-class hungry to consume. Now, this market will be accessible to those who would invest in the country, share value with its people and provide employment to its people,” one of them said.

Both large and small industries will get support in terms of liquidity and working capital and the government guarantee the credit flows. The Small industries Development Bank of India (Sidbi) will be the nodal agency for routing credit to micro, small and medium enterprises, the officials said.

According to them, the states will get more say on matters of economic planning and mobilising financial resources, but they will have to commit to reforms, particularly in agriculture and the power sector, in which electricity distribution companies are owed Rs 90,000 crore.

Hindustan Times reported on Tuesday that a comprehensive economic stimulus package is in the works, including aggressive implementation of the Rs 111 lakh crore National Infrastructure Pipeline (NIP). This will also include digital infrastructure to promote online health-care and education.

To augment the resources of states, the Centre is already in talks with state governments to relax provisions of the Fiscal Responsibility and Budget Management (FRBM) Act so that the latter can borrow money to finance the fight against Covid-19.

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The FRBM Act mandates states to keep their fiscal deficit at 3% of state gross domestic product (SGDP); states want greater leeway to borrow because they are strapped for funds -- they have suffered a revenue loss from dwindling tax collections because of the lockdown.

Providing food, cash and other relief to the rural poor and migrant workers will be the focus of the coming package, the officials said. While they declined to give specific details, they said the Mahatma Gandhi National Rural Employment Guarantee Programme will be the key vehicle for giving relief to the rural poor.

Varma of Primus Partners said the focus on reforms, infrastructure, systems and protecting the most vulnerable sections int the package will pay off in the form of long-term growth.

“We will need to ensure general consensus on the reforms proposed so that implementation does not fall prey to politics. Also, capacity of existing institutions to quickly translate this vision to action on the ground will be the key as well as focus on outcome and not mere spending,” Varma said.