A Report on Relief Package Announced by the Government of India (Archive, Nov 2020)
By: Anant Gulia
Tags: Coronavirus, India, Covid 19, Report, Economy

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The Government of India has taken various steps from the beginning of the lockdown to reduce its impact on the economy and resume growth. This includes not just through the fiscal policy but also working with the Reserve Bank of India (RBI) on its monetary policy. For instance, the finance minister announced relaxations within corporate tax laws as well as the Insolvency and Banking Code (IBC) in which the monetary threshold for initiation of insolvency proceedings was increased from ₹1 lakh to ₹1 crore. Since many businesses had lost their revenue due to the lockdowns and were expected to default their payments, this notification prevented several firms from being dragged to National Company Law Tribunal (NCLT), which would have further hampered the economy.

The government also announced a relief package of ₹20 lakh crore, equating to 10% of the GDP, of which liquidity-enhancing initiatives accounted for the bulk of the share. Similarly, many measures within the package were aimed towards the middle term, with benefits expected to be witnessed in 3 years, instead of a package focused on short term needs such as the decreasing demand or to pump money into the economy for upgradation of services like the health sector.

Out of the total package, ₹3 lakh crore has been provided as collateral-free loans for micro, small and medium enterprises (MSMEs), a move aimed at enabling 45 lakh units to restart work and save jobs. Although the MSME sector is important for employment, it is highly dependent on the rest of the economy for its market. Hence, unless the rest of the domestic economy was also revived, the MSME sector would have faced a shortage of demand and decreased production once again. This was visible as the cuts in lending rates did not lead to a major increase in borrowers. In fact, commercial banks chose to park their capital with the central bank using its reverse repo window, which went up from 3 lakh crore in March to 8.5 lakh crores by April.

The relief package also included an extension of Pradhan Mantri Garib Kalyan Anna Yojana to provide free ration to over 80 crore people by five more months, which would cost the government ₹90,000 crores. The poor also received direct benefits like free gas cylinders and direct money transfer to their bank account, ranging from ₹500-₹2000 under various schemes, costing the government another ₹2 lakh crores.

Within the relief package, ₹1.6 lakh crore was allocated to agriculture and allied sectors to strengthen their infrastructure, logistics, and capacity building. Along with the relief package, the Essential Commodities Act was also amended after more than 6 decades. However, a third of the farmer community was left out of these schemes. Likewise, developing infrastructure through the various initiatives will produce results in the medium to long term but not help with the current disruptions in harvesting and procurement. To ease short term pressures on the farmer community, a 3-month moratorium period on agricultural loans was introduced that benefited 3 crore farmers at the cost of ₹4.22 lakh crores.

The package also included additional funds for National Bank for Agriculture and Rural Development (NABARD) to provide refinancing to cooperative banks and support to the Rural Infrastructure Development Fund and working capital for state government entities involved in the procurement of agricultural produce. This is estimated to cost ₹41,000 crores and would bring a positive change in helping fix the demand problem.