The government’s fresh package of stimulus and relief measures intended to revive the economy and to alleviate distress is, once again, too little, too late, misdirected, and unlikely to make an impact. Even the little that has been promised may not reach the people who really need support. Finance Minister Nirmala Sitharaman announced on Monday a package of eight relief measures that offered job benefits and loan guarantees for Covid-affected sectors.
It comprises a Rs 1.1 lakh crore loan guarantee scheme for vulnerable sectors, including health and tourism, and guarantee cover for expansion or for new projects. The limit for the Emergency Credit Line Guarantee Scheme (ECLGS) has been enhanced. The government will provide free visas to five lakh tourists and financial support to more than 11,000 registered tourist guides and other stakeholders.
The package is mostly made up of government guarantee to banks and microfinance institutions for loans they extend to Covid-hit sectors. Together, with the previous spending on providing free food grains and an additional fertiliser subsidy, it totals up to Rs 6.29 lakh crore. The main ingredients are more credit guarantees, direct action in health and tourism, and support for weaker sections.
All sectors and their stakeholders have been demanding aid and relief for a long time. Most of them are broke, having been hit a second time by the second wave of the pandemic. It would have benefitted them if the package had come earlier. Some of them may not be in a position to utilise the incentives that have been offered. The usefulness of the entire package of credit and guarantees depends on the willingness of banks to lend. They have not been enthusiastic about it in the past, and it may not be different this time when the risks are greater.
The economy is on the sickbed and in such a condition that it is unable to take and digest conventional medicine. It needs direct transfusion but the government has been unwilling to do that. It has concentrated its attention on the supply side while the right prescription for relief and revival now is to create demand by putting money in the hands of people through means like direct cash transfer, doles, wages, etc., which will have an immediate impact. Inflation is at an elevated level and purchasing power has gone down. Continuing fuel price hikes have contributed to an all-round increase in prices. A reduction in taxes would help people to spend more, but the government is unwilling to do that. Some of the policies and decisions that form the package will have impact only in the medium and long term, while the need is for relief and recovery now.