by Haseeb Drabu
Seventy-five days after the Union budget—during which the world we live in has changed unrecognizably—the Prime Minister announced a Rs 20 trillion package. Coming after an expenditure budget of Rs 30 trillion, it was obvious that what the PM announced would not be a “cash-out” package. It would be a combination of facilitating infusion of money into the economy through a variety of measure such as repackaging existing allocations, policies and programmes to give a “fresh” stimulus package.
The first tranche of announcements reveals that the package is designed to extend a helping hand; not a fiscal stimulus, less so a bailout. The purse strings haven’t been loosened, at least not just as yet. For those who assumed it to be a Rs 20 trillion cash package, there will not only be devil’s but quite a few demons in the detail.
There are two basic elements to the strategy underlying the package. First is to address liquidity, not of funding and financing. Second, not to create money, but to leveraging money. So far, no level of liquidity control has been adjusted but a lot of nuts and bolts have been loosened.
As of now, the package is addressing cash flow management of businesses and individuals. In this, there are a few good practical steps that have been taken. For instance, the commitment to clear all pending payments by the CPSEs, or easing contractor’s liabilities.
On individuals, the 25% reduction in TDS will help release disposable incomes. The GST refunds is an important missing element in this. But in general, the lock-jammed wheels of commerce have been greased a bit. The problem here is that many of these measures have been announced for a three-month period. The least that could have been done was to extend it till the end of the fiscal. The PM saying it will go on till some time makes it half-hearted.
The real takeaway from the PM’s speech and the FM’s detailing is that the government has moved away from the stifling and silly binaries of lockdown versus no lockdown, lives versus livelihood, and stimulus versus no stimulus, to find the right mix.
Also, at the political economy and policy level, it is a repackaged Nehruvian commanding heights in a globalized context. The opportunities and challenges resulting from globalization in a post-Covid world has left PM Modi with one simple lesson: Prioritize self-reliance. It is this that has made India resilient in the last 70 years and it is only respecting the nation’s and individuals’ intrinsic capabilities by which the problem will be overcome.
What PM Modi didn’t highlight in the strategy for national self-sufficiency, aka Atmanirbhar Bharat, are the dangers to it. That has been done by JM Keynes writing about the need for “National Self-Sufficiency”, in The Yale Review, in June 1933. It is absolutely appropriate and relevant to these times: “I see three outstanding dangers in the movements towards national self-sufficiency, imperilling their success. The first is Silliness—the silliness of the doctrinaire. When the seats of power and authority have been attained, there should be no more poetic licence. The second danger—and a worse danger than silliness—is Haste. The economic transition of a society is a thing to be accomplished slowly, not as a sudden revolution, but a secular trend. The third risk, and the worst risk of all three, is Intolerance, and the stifling of instructed criticism. It is the modern method—but very disastrous, I am still old-fashioned enough to believe to depend on propaganda and to seize the organs of opinion.”
As long as these three dangers are factored in, this package and, for that matter any stimulus, should see India through.
(An economist, the author is the former finance minister of Jammu and Kashmir. The opinion appeared in the Mint.)