After asserting that people should wait for the Union Budget’s announcements to trickle down before seeking a fresh stimulus to cope with the second wave of the pandemic, the government finally unveiled a relief package of sorts this Monday. The financial implications of the measures, such as the promise of easy small-ticket loans for 25 lakh micro-entrepreneurs and 11,000 tourist agents and free tourist visas, have been projected at about ₹6.29 lakh crore by the Finance Ministry. Nearly ₹2.68 lakh crore of this is in the form of credit guarantees. A further ₹1.5 lakh crore of guarantees has been promised to add to the ₹3 lakh crore emergency credit scheme, but the scheme’s tenure hasn’t been extended beyond September 30. Similar backing has been announced for loans worth ₹60,000 crore to COVID-affected sectors, but only tourism has been publicly identified. Enhancing loan guarantees will perhaps give risk-averse lenders more confidence in extending loans when the credit:deposit ratio has hit a multi-year low. But there is little to make such loans viable by stirring demand for goods and services. Free visas are a good idea but are unlikely to gain traction till India has a firmer grip on the pandemic by providing vaccines for all, including for those under 18. Loans of ₹1 lakh to ₹10 lakh for travel agents may help meet some liabilities or expenses but won’t make people take holidays. Just like last year’s ₹20 lakh crore package, the actual outgo from the exchequer this time is minimal and the direct stimulus to demand abysmal.
Additional spending of ₹15,000 crore to ramp up paediatric healthcare, with guarantees for ₹50,000 crore low-interest loans for health projects in the hinterland, are critical to cope with future pandemic waves. It makes sense to direct resources towards health and faster vaccination. But the inclusion of measures already announced (such as fertilizer subsidies and food grains for the poor), along with spends planned over the next two or five years, and even a ₹77.5 crore bailout plan for an ailing farm marketing firm, gives the package just extra padding. Investing time and resources to figure out some form of income support for the vulnerable sections in rural and urban areas would have been more helpful. Weak demand is a bigger concern for industry this year as high inflation, a propensity to save for future medical bills, and an uncertain job market have led to belt-tightening from consumers. If the government is hesitant about creating new doles for the fear of them becoming permanent features, it could have at least offered some immediate relief for all by addressing the elephant in the room – high fuel prices. This would dampen inflation, empower RBI to lend greater support to growth and leave a little more money in people’s hands to spend. While the effort to maintain fiscal restraint may impress global rating agencies, they would be among the first to acknowledge that there’s a tipping point where policy inaction risks hurting the economy’s long-term prospects.
