Understanding Centre’s ‘Atmanirbhar Bharat’ Economic Package

Is ‘Atmanirbhar Bharat’ Economic Package actually the 10% of India’s GDP, as the PM said? Many firms like Barclays and HSBC believe that the package is worth just 1% of India’s GDP, not 10%. Before understanding this disparity, we need to know the monetary and fiscal policies of any country.

In light of the going COVID-19 crisis, Prime Minister Narendra Modi in his latest address to the nation announced an economic relief package that he called self-reliant India or Atmanirbhar Bharat. To overcome the economic slowdown, he announced the induction of Rs 20 lakh crore into our economy. He asserted to cut down import dependency and increase domestic production by focusing on the ‘local’ products.

According to the data provided by the Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India reached 27% by May 3. A major economic relief package was the need of the hour and PM Modi’s Rs 20 lakh crore relief package announcement came as a sign of relief for many.

After his announcement, over the course of the next five days, Finance Minister Nirmala Sitharam unveiled the details of the package. The package focused on 4Ls: Land, Labour, Liquidity, and Laws.

But is it actually the 10% of India’s GDP, as the PM said? Many firms like Barclays and HSBC believe that the package is worth just 1% of India’s GDP, not 10%. Before understanding this disparity, we need to know the monetary and fiscal policies of any country.

The monetary policies are usually formed by the central bank, in India’s case, it is the Reserve Bank of India (RBI). RBI is responsible for the influx of money in the economy, fluctuation in the interest rates, inflation, etc. Whereas, fiscal policies are made by the central government where it manages the budget, taxes, etc.

Ideally, these two policies are independent of each other. But in the Atmanirbhar Bharat package, the government has included the Rs 8 lakh ‘liquidity infusion’ done by the RBI earlier. So out of the Rs 20 lakh crore, Rs 8 lakh crore was already infused in our economy.

The government also included the schemes previously introduced like Pradhan Mantri Garib Kalyan Package (PMGKP) which was implemented on March 26 to help migrants, farmers, women, poor, and citizen citizens. Around Rs 1.7 lakh crore was announced for their aide by the Finance Minister.

After deducting the Rs 8 lakh crore induced by the RBI and Rs 1.7 lakh crore already allocated under PMGKP, the economic relief package was of around 10 lakh crore only. Now, let’s look at the key highlights of the package tranche wise.

Tranche 1 focused on MSMEs and other businesses

Size of the package: Rs 5.94 lakh crore

• Rs 3 lakh crore collateral-free automated loan to MSMEs with 100% credit guarantee to cover banks
• Rs 20,000 crore subordinated debt to provide equity support to stressed MSMEs
• Rs 2,500 crore EPF support for businesses and workers for 3 months
• Rs 90,000 crore liquidity induction for power distribution companies
• 25% reduction in TDS/TCS rates

Tranche 2 focused on migrant workers, small farmers, and poor

Size of the package: Rs 3.10 lakh crore

• Rs 3,500 crore worth of free food grains, 5 kgs of wheat/rice per family, one kg of channa per family per month for the next two months
• One nation, one ration card to be implemented by May 2021
• Rs 2 lakh to be given to farmers through Kisan Credit Cards
• Rental accommodation under PM Awas Yojana
• Rs 5,000 crore worth liquidity for street vendors

Tranche 3 focused on farmers and the agricultural sector

Size of the package: Rs 1.5 lakh crore

• Rs 1 lakh crore for farming infrastructure
• Rs 20,000 crore for marine and fisheries
• Rs 4,000 crore for herbal and medical plants
• Agriculture market to be freed up

Tranche 4 focused on reforms in 8 critical sector- Coal, Minerals Defence Production, Airspace management, Social Infrastructure Projects, Power distribution companies, Space sectors, and Atomic Energy

Size of the package: Rs 8,100 crore

• The private sector investment allowed in coal mining, mineral, power distribution, and space sector
• Rs 8,100 crore to revamp Viability Gap Funding

Tranche 5 focused on MGNREGS health and education

Size of the package: Rs 40,000 crore

• Rs 40,000 crore more added to MGNREGS
• Under PM eVidya program, TV channels to show classes from 1st to 12th standard

In this relief package, the government majorly focused on loans and credits. In the short run, to tackle the adversities of COVID-19, this might seem helpful, but in the long run, it will be ineffective. It will surely increase the burden on companies and people when the payback will come. The positive takeaways of this package are the influx of money under MGNREGS and monetary relief given to migrants and farmers.

At present, there is no sure-shot way of knowing what will be the final level of government spending at the end of this financial year. Most calculations suggest that far from the promised level of 10% of the GDP  the actual government expenditure in the Atmanirbhar Bharat Abhiyan is just 1% of GDP. And we still don’t know if this 1% (of GDP) expenditure is over and above the Budgeted expenditure or will it be funded by expenditure cuts elsewhere.

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