A tranche of cash for the poor, FM?

The explanations given by Union Finance Minister Nirmala Sitharaman about the stimulus package which she unveiled last week have not helped to remove the widespread sense that it is not adequate to counter the impact of the COVID-19 lockdown on the economy. She has said that the large sums that would go into the economy through credit enhancement and facilitation measures would have a multiplier and trickle-down effect and would create demand. But the credit pipeline may still remain choked as in the past, and even if it opens up and businesses get going, there may not be enough demand in the economy to respond to it. It will also take a long time for the money to trickle down and create demand, while the need is to create it here and now. This has again brought attention to the need to put cash in people’s hands immediately.

It is also now known that the actual fiscal stimulus proposed through the package is barely 1% of the GDP, and not 10% as claimed earlier. The 10% claim may have been made to show that India’s package is similar to those announced by some other countries like the US and the UK, which, it may be noted, decided to cover up to 80% of the salaries of the staff and workers of private companies provided the companies did not sack them. Compared to this, very little has been passed on or promised to those who have been hit by the more severe lockdown in India. The migrant workers are the worst hit, but the minister simply said there is not enough data about them to help them. That’s not a convincing reason for not helping people in distress who are in camps across the country, restrained from going home for weeks. Data is needed when the help is to be targeted to specific groups. In the situation created by the lockdown, the millions in distress are right in front of the government’s eyes.

The minister also suggested that the government had refrained from a large fiscal package because it had learnt lessons from the big stimulus package of the UPA government after the 2008 global financial crisis. But the two situations are entirely different. The economy was not as badly hit then as it is now. It was the continuation of the stimulus for a much longer period than needed that caused high inflation during the UPA regime. The present need is to stimulate demand and increase people’s buying power. The minister has done well, however, to hint that the government may consider this in the weeks to come.