The Stimulus Package Announced By the FM is Underwhelming!

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  • The economic scenario in the country is teetering on the brink over the past year and a half owing to the pandemic-induced survival challenges that need no further elaboration. That said, the economy was not positioned to grow either as projected by the Union Government, and the economic think tank even before the pandemic struck cannot be ignored altogether.  On its part, the Union Finance Minister came out with stimulus financial packages with a big-bang announcement of the Atmanirbhar Bharat campaign emphasizing self-sufficiency and self-reliance to bail out the distressed sectors.
  • Though the economy was primed to show real recovery, the unexpected destruction caused by the second Covid wave put paid to those hopes and aspirations. There was a consistent demand for some more stimulus packages from struggling sectors, backed by the RBI’s monetary policy committee, in the absence of concrete outcome assuring returning of normalcy by the authorities concerned. Extremely volatile situation on the ground resulting from supply-side challenges restricting the vaccination drive which in turn would have enabled economic activities to resume unhindered to a great extent was also a major concern.

PC: Zricks.com

  • Therefore, crucial industries, the agriculture sector, manufacturing establishments, and services sectors were found to be hard-pressed to stay afloat owing to stalled economic activities. Of course, there is a definite hope with the vaccination supply reaching intended levels on the back of increased production capabilities. Realizing the duress, Finance Minister Nirmala Sitharaman has announced an Rs. 6.28 lakh crore package of measures. Unfortunately, it is being viewed as underwhelming as a large part of it is a set of reform measures spread out over five years.
  • Some of it is procedural changes in existing schemes and measures that had been announced earlier. Note that the core of the package is premised on banks willing to step up lending with government-backed guarantees.No wonder, the package is being seen as inadequate to offset the uncertainty and boost flagging economic consumption. As seen previously, the GOI is letting the banks do the heavy lifting and in continuation with the same approach, Rs. 2.67 lakh crore of the new package is built around the hope that banks will lend to Covid-affected businesses and others when backed by guarantees.

PC:  BTT

  • The guarantee aims to lower the lending risks of banks. However, this approach has so far not yielded satisfactory results.  Simply looking at the bank credit over the last year will reveal the growth of just 5.7% and lags the 9.7% growth in deposits.  Banks are playing safe by not deploying enough of the money coming their way as an environment of risk aversion has neutralized the efficacy of monetary measures. Of course, the Government of India is controlling the economic levers that can make a difference or mar the economic recovery.
  • It is no rocket science to comprehend that the urban poor is in urgent need of financial support through cash transfers. Pumping in funds into infrastructure projects on the back of financial support will provide the stimulus for spending.  Awarding contracts to private firms will positively impact job creation and give impetus to aggregate demand as well.  Make no mistake, vaccination speed, emphasis on infrastructure spending, and availability of funds are critical for economic recovery.

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Krishna MV
Krishna is a Post Graduate with specialization in English Literature and Human Resource Management, respectively. Having served the Indian Air Force with distinction for 16 years, Armed Forces background definitely played a very major role in shaping as to who & what he is right now. Presently, he is employed as The Administrator of a well known educational institute in Bangalore. He is passionate about sharing thoughts by writing articles on the current affairs / topics with insightful dissection and offering counter / alternate views thrown in for good measure. Also, passionate about Cricket, Music – especially vintage Kannada & Hindi film songs, reading – non-fictional & Self-Help Books, and of course, fitness without compromising on the culinary pleasures.