In December, a disease was reported in China, that passed on to people without being noticed. It started in one country, moved to another, and in no time spread across the world.
And this unfortunate illness was witnessed for the first time in India on 30th January 2020. Then it passed on to people even faster than time. This laid the country in dire need of a relied package.
Why the relief package was announced?
Then the government of India made an extremely smart move. It announced a National Lockdown immediately after the number of COVID 19 positive cases started escalating rapidly. This lockdown helped to slow down the spread of the disease.
But there were already a huge number of people who were suffering from the disease. To reach out to these people and to provide a helping hand, Prime Minister Narendra Modi announced the Rs. 20 lakh COVID 19 relief fund package on May 12, 2020.
Purpose of relief package?
This relief package is actually meant to provide all the people who are in need. It also focuses on land labor, laws, and liquidity to revive the economy that has suffered tremendously due to the lockdown.
Worst hit were the daily wage earners who were now earning nothing for their survival. The government also took advantage of this situation to re-package some of the old measures and put some new reforms in agriculture and public sector enterprises.
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It also focuses to cater to various sections, including cottage industries, MSMEs, laborers, middle class, and industries. The combined package works out to roughly 10% of the GDP, making it among the most substantial in the world after the financial packages announced by the United States, which is 13% of its GDP, and by Japan, which is over 21% of its GDP.
tHE BREAKDOWN OF RELIEF PACKAGE
This fund was broken down for the use of a number of activities for which action was necessary. Our finance Minister Nirmala Sitharaman announced the Pradhan Mantri Garib Kalyan Yojana package (PMGKY)., on March 26, 2020, of Rs. 1.7 lakh crore or 0.85% of the GDP.
Under this, the government announced free wheat or rice plus pulses to the poor as well as a cash payment to women and poor senior citizens and farmers for over a period of 3 months. It includes the PM Kisan Scheme, where the Prime Minister released Rs. 17,380 crores, of the 20-lakh crore COVID 19 relief fund, to 8.5 crore farmers.
The PM proudly states that this money has successfully reached the farmers and a total of Rs. 22,000 crores were remitted during the lockdown period. Along with this the PMGKYP also includes the Building and Other Construction Workers Welfare Cess Fund worth Rs. 31,000 crore and the District Mineral Foundation Funds worth Rs. 35,925 crores.
Note that these were no additional cost to the government and do not act as a burden, but a fiscal cost of Rs. 85,695 crores were added to the central government to complete the given scheme.
RBI’s Liquidity injection
On March 27 and April 17, 2020, the reserve bank of India announced liquidity injections to the economy. The size of these packages together is Rs. 3.74 lakh crores (2.3% of GDP).
It includes the functioning of Long-Term Repo Operation (TLTRO) worth Rs. 1.5 lakh crores. The Cash Reserve Ratio (CRR) was reduced from 90% to 80% which resulted in the release of about Rs. 1.37 lakh crores uniformly across the banking system in proportion to the liabilities of constituents rather than in relation to holdings of excess SLR.
The accommodation under the Marginal Standing Facility hiked from 2% of Statutory Liquidity Ration to 3% adding liquidity of Rs. 1.37 lakh crores to the market. Also, the government refinanced the Sidbi, Nabard and NHB with Rs. 50,000 crores. The fiscal cost to the central government was null.
Then on May 12, 2020 the COVID 19 relief fund was announced as the AtmaNirbhar package worth Rs. 20- lakh crore and includes the announcement made earlier by the RBI and the Finance Minister.
Atmanirbhar Bharat Tranche 1
On May 13, 2020, the Indian Finance Minister presented Tranche 1 of the AtmaNirbhar package the size of which is Rs. 5.94 lakh crore (2.97% of the GDP). This package included a number of mini schemes a few of which are on their way to be completed
- The government provided Rs. 2500 crore employment provident fund (EPF) support and also reduced its contribution to Rs. 6,750 crores to businesses and workers for 3 months.
- A special liquidity scheme for NBFCs/HFCs/MFIs, securities issued by them was fully guaranteed by the government worth Rs. 30,000 crores, after which a partial credit Guarantee Scheme 2.0 for NBFCs, first 20% borne by the government of Rs. 45,000 crores
- Collateral free automatic loans to MSMEs, government gave 100% credit guarantee cover to banks and NBFCs on principal and interest costing Rs. 3 lakh crores
- Equity infusion of Rs. 50,000 crores by the government for MSMEs through fund of funds, mother fund and a few daughter funds to operate it.
- 25% reduction in the TDS/TCS rate that cost Rs. 50,000 crores
Fiscal cost to the central government was Rs. 25,000 crores (0.13% of GDP)
Atmanirbhar Bharat Tranche 2
After 2 days of announcing the Tranche 1 of the AtmaNirbhar package the Tranche 2 was announced. The size of this package is Rs. 3.10 lakh crore which is 1.55% of the GDP. This Tranche incudes
- Free food grain supply to migrants for 2 months, worth Rs. 3,500 crores
- Interest subvention of 2 percent for prompt payees for a period of 12 months and a total relief of Rs. 1500 crores were made available by the government to MUDRA-Shishu loanees.
- A special liquidity scheme to provide Rs. 10,000 working capital to 50 lakh street vendors amounting to Rs 5,000 crore.
- For the middle-income facilities, a credit-linked subsidy scheme was introduced worth Rs. 6-18 lakh a year, with expectations it is likely to lead to an Rs. 70,000 crore investment in the housing industry.
- Concessional credit was provided to 2.5 crore farmers through the Kisan Credit Cards worth Rs. 2 lakh crores, etc.
The additional fiscal cost to the central government was Rs. 5,000 crores (0.025 % of GDP)
Atmanirbhar Bharat Tranche 3
Then again after 3 days, that is on May 15, 2020, the Tranche 3 of AtmaNirbhar package by the Finance Minister worth Rs. 1.5 lakh crore, i.e. (0.025% GDP), it includes the following schemes
- A value of Rs. 1 lakh crore for financing facility for agri infrastructure projects
- A scheme was introduced worth Rs. 10,000 crores for the formalization of the of Micro Food Enterprises.
- Funding for fishermen through PM Matsya Sampada Yojana of Rs. 20,000 crore
- Animal Husbandry Infrastructure Development Fund to be set up of Rs. 15,000 crore
- Promotion of herbal cultivation of Rs. 4,000 crores
- Beekeeping initiatives of Rs. 500 crores
- Operation Green to be extended to all the vegetables worth Rs. 500 crores
Fiscal cost to the central government of Rs. 30,000 crores (0.15% of GDP).
Atmanirbhar Bharat Tranche 4
The Finance Minister announced the Tranche 4 of the AtmaNirbhar package on May 16, 2020. This package was a total of Rs. 8,100 crore (0.04% of GDP) and the fiscal cost to the government was the same.
Atmanirbhar Bharat Tranche 5
On May 17, 2020, Tranche 5 of AtmaNirbhar package which included a new policy for public sector enterprises, strategic sectors to be notified in which there will be at least one, but not more than four, PSEs in addition to private players.
Also, the limit to state borrowing increased to 5% of the GSDP from 3% of GSDP; but only 0.5% of it (Rs. 1.07 lakh crore) could be raised conditionally. This package also includes helping MGNREGA with additional Rs. 40,000 crores. A fiscal cost of Rs. 40,000 crores (0.2% of GDP) was added to the center.
Thus, due to the coronavirus pandemic a number of issues were noticed and realised by the government and the necessary actions have been taken.
As of now, these packages are fulfilling its selective purposes and are being carried out without any major problems.
These packages also provide easy access to land as well as labour, which may lure the companies out of China.
To conclude, even if this excessive expense package may seem detrimental, it is developing the economic base of our country and in the future years, these are going to help in the rapid growth of our economy.