Why Economists Think India’s Rs 1.7 Lakh Crore Relief Is Not Enough

Finance Minister Nirmala Sitharaman today announced a Rs 1.7 lakh crore ($22 billion) relief package, aimed particularly at the economically weaker sections of society that are reeling under lockdown due to the coronavirus outbreak.

Sitharaman’s package involves a number of direct cash transfers and food security through the public distribution system. It also involves an insurance cover for medical workers in the frontlines of the battle against the Covid-19 pandemic.

While most economists that spoke to BloombergQuint welcomed the interventions announced today, they feel these measures are not adequate to address the plight that the marginalised are facing.

Here’s what economists made of the Finance Minister’s announcements:

‘Government Doesn’t Realise The Scale Of The Problem’

The focus on vulnerable sections is welcome, but I think it is a very small amount relative to the scale of the problem, said Jayati Ghosh, a development economist and professor at the Jawaharlal Nehru University. “It appears the central government has not yet realised the extent of the economic misery that is being caused by the lockdown.:

Cash transfers of Rs 500 per month to women Jan Dhan account holders is a “pathetic” amount, Ghosh said. “It really should’ve been something like a minimum wage transfer to all Jan Dhan accounts, as something to deal with the fact that it is now impossible to do any economic activity.”

• We are staring at declining economic output, we need a much larger fiscal stimulus.
• The government should have front-loaded the delivery of food grains.
• The government should have thought of how the food grains will get delivered amid social distancing.
• We are in a major emergency, the government trying to do a package that’s cheap.

‘More Steps, Quick Implementation Needed’

The government’s priorities are right in laying out a mix of cash and goods transfers, said Rahul Bajoria, chief India economist at the Barclays Investment Bank. “I don’t think this will be the end of fiscal steps. There are more steps which will be initiated and are required also at the industry level.”

The key focus, Bajoria said, is how quickly these measures can be implemented. The package is also not going to be a fiscal burden as its impact on India’s deficit will not be pronounced, he said.

Bajoria expects India to lose around $120 billion of economic activity due to the lockdown. His projections are based on four weeks of a full lockdown and eight weeks of partial lockdown. The government may lean on the banks to provide lines of credit while the RBI may have to step in with measures like forbearance if the situation escalates, he said.

‘Package Not As Big As It Looks’

The relief measures are much below one's expectations, said M Govinda Rao, an economist and a member of the 14th Finance Commission of India. “The situation is much more serious than what the package deals with.”

Many of the measures are just frontloading expenditure which is already planned such as the increase in wages of MNREGA workers, Rao said. “At the end of the day. I don’t see it as Rs 1.7 lakh crore. It is possibly much less than that.”

Rao said that it is not very clear to what extent the measures will alleviate the uncertainty. There was also a need to address the problems of small and medium businesses, he said.

The finance minister could have announced a 50 basis point relaxation to states on their fiscal deficit target in order to give them more room to spend and tackle the crisis, Rao said. The states had to take the lead in announcing measures and stimulus themselves because they couldn't wait any longer, he said. “At this state neither states nor the centre should think about the fiscal deficit because we have to fight it on a war footing.”

‘Needed Better Targetting For Cash Transfers’

The government’s step to double the ration given through the public distribution system and that pulses are included in them is a good step, according to Reetika Khera, associate professor at IIM-Ahmedabad. But the amounts announced in the relief are disappointing, she said.

Khera noted that the target group for cash transfers—women Jan Dhan account holders—is not the best of choices. It would’ve been much better to transfer cash to MNREGA workers as their database includes the poorest workers, she said. “For MNREGA workers, the package is a big letdown. The increase in wages would’ve happened anyways.”

Jan Dhan women account holders are unlikely to be the poorest of the lot, according to Khera. Besides, a problem of duplication could arise as well, she said. “The focus on women is always welcome, but Jan Dhan holders are not the poorest.”

Watch the full discussion with economists on Finance Minister’s relief measures here.