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Economic stimulus package under Atmanirbhar Bharat 3.0

Search 13th Nov, 2020 Spotlight News Analysis here: http://www.newsonair.com/Main_Audio_Bulletins_Search.aspx

Topic: General Studies 2, 3:

• Government policies and interventions for development in various sectors and issues arising out of their design and implementation
• Indian economy and mobilization of resources

In news: Finance Minister Nirmala Sitharaman announced stimulus measures to aid job creation, and boost the key real estate and infrastructure sectors, under the government’s Atmanirbhar Bharat 3.0 package, aimed at rescuing the economy out of a historic contraction.

“A number of indicators are showing that recovery is clearly happening in the economy… The strong recovery is based on the unrelenting reforms that the government has brought in a systematic manner,” the Finance Minister said in a media briefing. 

Asserting that the latest set of measures take the overall monetary and fiscal support for the economy to ₹ 29.88 lakh crore, the finance minister said it is equivalent to 15 per cent of the country’s GDP.  The announcements come at a time when economists have called for the need for further impetus to aid a revival in an economy battered by the world’s biggest lockdown to curb the spread of COVID-19. 

Atmanirbhar Bharat 3.0

1. Atmanirbhar Bharta Rozgar Yojana:  The new employees hired by the EPFO-registered organisations will receive benefits during COVID-19. If the EPFO registered establishments take in new employees or those who lost jobs earlier will get benefits from government.
2. Emergency Credit Line Guarantee Scheme (ECLGS) for MSMEs, businesses, MUDRA borrowers and individuals (loans for business purposes), has been extended till March 31, 2021. 
3. New Credit Guarantee Scheme: A credit guarantee support scheme for health care sector and 26 sectors stressed due to COVID-19 pandemic was also launched. Under this new credit scheme, banks will be able to lend to stressed companies from 26 sectors identified by the K.V. Kamath committee earlier this year.
4. Production-Linked Incentive: The PLI scheme worth ₹ 1.46 lakh crore is being offered to 10 champion sectors which will help boost the efficiency and competitiveness of domestic manufacturing. A total amount of ₹ 1.5 lakh crore has been earmarked across sectors, for the next five years.
5. Pradhan Mantri Awaaz Yojana Urban: An additional outlay of ₹ 18,000 crore over budget estimate towards PM Awaaz Yojana Urban has been announced which will help ground 12 lakh houses and complete 18 lakh houses. This will create additional 78 lakh jobs and improve the production and sale of cement and steel.
6. Income Tax Relief for Developers and Home Buyers for houses up to ₹ 2 crore which provides an incentive to the middle class to buy homes.
7. Equity Investment in Debt Platform by NIIF: The government will make ₹ 6,000 crore equity investment in debt platform of National Investment and Infrastructure Fund (NIIF), which will help NIIF raise ₹ 1.1 lakh crore by 2025 for financing infrastructure project
8. Total Support: It comes at a time when the worst seems to be over and the economy seems to be transitioning from the normalisation of economic activity stage to the growth recovery stage. The support totalled  ₹2.65 trillion.

Merits of the Package

• The measures are designed to maximise the economic impact of fiscal spending, like the various credit guarantee programmes, where the flows triggered by the guarantee are several times the potential fiscal cost
• Spending is calibrated, as seen in the continued expansion of the MGNREGA budget, which received its second extension, given that three-fourths of the earlier expanded budget had been used up by October.
• Issue of Hunger tackled: The free grains programme was not extended beyond November, as the economy is now more or less fully open, and the risk of abject hunger is lower.
• Success of PLI Scheme: The expansion of the Production-Linked Incentives (PLI) scheme to 10 new sectors is a result of the success thus far of the PLI scheme for handsets. The PLI scheme is as much about self-reliance or cutting down imports, as it is about offering cash incentives to boost domestic production, which is expected to create employment.
• Stresses Sectors recognised: The package expands the supply of loanable funds through enlargement of credit guarantee scheme to support stressed sectors 
• Boost to Real Estate Sector: Tax incentives for home buyers could potentially unleash a price discovery in the real estate market. The real estate sector which has a significant multiplier impact on the economy has high employment generation capabilities.
• Boosting Employment: By offering to foot the bill for provident fund contributions, it has nudged companies, big and small, to hire. 
• Urban Poor and Demand for Urban NREGA: Unsure of whether an urban MGNREGA could be implemented cleanly, and even if so, what its impact would be on rural-urban migration, the Indian government has chosen to target this problem indirectly, through a sharp increase in the budget for urban affordable housing.

Concerns

• Banks not enthusiastic to lend: The originally envisaged credit guarantee scheme with a target disbursement of ₹3 trillion has seen just about half of the amount being lent out by banks. This shows that despite low risk, banks are uncomfortable to lend.
• Future Risk: Forcing banks to lend to companies where assessing risk has become a challenge due to the pandemic puts banks at a bigger risk, credit guarantee or not.
• Impacts can be felt in medium term: The Rs 1,45,980 crore expenditure in the form of production-linked incentives (PLIs) to 10 new sectors will be over five years, and likely kick in only next financial year

Way Forward

• First, a recalibration of borrowing is required this year, which could provide some relief to the bond markets. 
• Second, clearing overdue payments, particularly by state governments — the Centre’s decision to clear fertiliser arrears is a step in right direction. This by itself could provide a stimulus to the economy. 
• Third, and most important, would be for state and central governments to build in a stimulus in next year’s budget.

Connecting the Dots:

1. Highlight the measures announced by the current government to help boost the economy during the COVID-19 crisis.
2. Do you think the vision of Atmanirbhar Bharat would be a game changer for the domestic industries? Substantiate your views.