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Coronanomy-05

For the country’s affluent, lockdown meant working from home or enforced paid holidays, but for the poor, it was a different story altogether. Closed factories, idle construction sites, and so on. This stopped wages for them, and unable to feed themselves or pay rent, they were forced to pack up and move towards their faraway villages.

Day 2 was focussed on migrant workers, urban poor, and the rural economy.

Migrant Workers: Day 2 Session 1

Free food for migrant workers

The first thing the government announced in the second tranche was a much needed free foodgrain distribution to 8 crores migrant workers who do not fall under the Food Security Act. It was promised to provide 5 kg of wheat/rice and 1 kg of chana per family per month for the next two months. The expected cost for this is just Rs 3500 crores. Given the record harvest of crops, it is very puzzling why the government took so long to announce this relief to the migrant workers as it could have been quickly announced a couple of months ago.

The fiercest criticism the government faced after the five days was not providing direct cash transfers to the migrant workers and the poor. There is a massive argument against the government that large-scale cash transfers will benefit the poor and the economy. Former RBI Governor Raghuram Rajan has said the package gives free food grains, but migrant workers, rendered jobless by lockdown, need money to buy milk, vegetables, and cooking oil and pay rent.

One Nation One Ration and Affordable Rental Housing Complex (ARHC)

Under the National Food Security Act, about 81 crore Indian citizens are entitled to subsidized food grains such as — rice for Rs 3/kg, wheat for Rs 2/kg, and coarse grains at Re 1/kg. Previously, a person could only buy the food grains from an assigned Fair Price Shop (FPS) in his/her locality. So, a person who migrates to another place, say from UP to Mumbai for work will become ineligible for subsidized food grains in Mumbai. Under One Nation One Ration, a person will be able to benefit from any FPS in India. The new system uses biometric identification on electronic Point of Sales (ePOS) devices installed in the shops. So far, 20 states have come on board to roll out the inter-state portability of ration cards. The Finance Minister stated that this would get completed by March 2021 and is functional in many parts of the country as of now as this scheme was initially launched in April 2018 to reform the Public Distribution System.

But there are substantial implementational challenges to this scheme. To benefit from this scheme, the Aadhar card of all members of the family should be linked with the ration card. A lack of infrastructure, such as unavailability of ePOS at FPS shops, could mean that this will take some time to be implemented.

Affordable Rental Housing Complex (ARHC) aims to provide social security and quality life to migrant laborers, urban poor, and students, etc. and will be done through the conversion of government-funded houses into ARHC. Also, the government will incentivize manufacturing units and industries to develop ARHC units on their private land and operate. According to the government, these measures will lead to an investment of Rs 70000 crores in the housing sector and will create jobs.

These schemes provide very little relief in the short term but a big leap in the right direction. These schemes will take some time but, if they had been in place earlier, many of the workers would not have been forced to flock to their villages.

Farmers: Day 2 Session 2

2 lakh crore for farmers

The government announced Rs 2 lakh crore of concessional credit to 2.5 crore farmers through Kisan Credit Cards. Under this scheme, farmers involved in fisheries and animal husbandry will also be included. This scheme is aimed at providing formal credit to farmers at cheap interest rates. The government also announced that nearly 25 lakhs Kisan Credit Cards are in the pipeline for small and marginal farmers.

Kisan Credit Cards (KCC), which were launched in 1998, still only have a coverage of 45% as estimated by RBI, and it could be further low due to multiple accounts per user. Besides, fishermen and livestock farmers are also to be included under this scheme, but they remain woefully uncovered by the formal credit system as 90% of formal credit is sanctioned as crop loans. The intention to include them was commendable, but they mostly remain out of the purview of existing formal channels.

30000 crores Emergency Capital

Government sanctioned Rs 30000 crore additional working capital for farmers through NABARD and is mainly aimed at providing relief to small and marginal farmers. It is estimated that it will provide working capital to 30 million small and marginal farmers.

However, according to RBI, at most, only 40% of the small and marginal farmers are covered by the formal credit, and these statistics are based on landholding, which excludes tenant farmers, who are a significant proportion in many regions.

Urban Poor: Day 2 Session 3

5000 crores for street vendors

There has been a very adverse impact on street vendors due to the lockdown. The government has recognized that and announced a Rs 5000 crores credit facility to nearly 50 lakh street vendors. Each will be eligible for Rs 10000. The government also said that they would provide monetary benefits to them if they accept digital payments in the future and more credit based on repayment history.

The problem is that the banking sector has always overlooked these people, and thus, there is a huge implementation challenge for banks to provide this credit. The problem lies in the identification of vendors and their tracking. In my opinion, these loans will mostly turn into NPAs, and it is more like a cash handout as there is not much incentive for the people to repay this money.

2% interest subvention for Mudra Shishu Loans

MUDRA Shishu loans are collateral-free loans of up to Rs 50000. Micro-businesses and very small businessmen often take these loans. 2% interest subvention for one year means that the government will pay 2% interest on all the loans. For example, let’s suppose a person has taken a loan of Rs 50000 at a 12% interest rate, then the government will pay a 2% interest of the 12% interest, and the borrower will still pay the rest. The current portfolio of Shishu loans amount to Rs 1.62 lakh crore, and thus the government will pay a total of Rs 1500 crore.

It means that the government has assumed that these people will pick their earnings after some time, which is a rather strong assumption as things are panning out. Indian Industries Association (IIA) said that either the interest rate should have been reduced substantially or moratorium should be extended till March 2021.

Overview

• The second tranche contained some of the much-needed relief and long term reforms. The government promised free food grains to all the migrant workers, but is it enough!? There is a strong case of giving direct cash transfer to these people so that they can get their “roti,” “kapda” aur “makaan.”
• Very less urgent relief has been given, and more focus has been on long term reforms such as One Nation One Ration and ARHC, which will, no doubt, provide social security and improve the quality of life, but in the “future.”
• Meanwhile, a substantial amount of credit has been promised to the agriculture sector at concessional rates; the primary challenge is to expand the reach of the formal credit system to even the most marginalized farmer.
• The government’s aim to expand the credit even to the street vendors is something this country has never seen. And that exactly is the challenge as there are no past credit records of these people. That makes these loans risky as there is no incentive to repay, and many of them will turn into NPA, which is still not a bad thing as this money can help these people in these tough times.

In the next blog…

1991 moment for Agriculture!!

Day 3 of the package announced some significant reforms in agriculture, which is a massive step towards doubling the farmer’s income as promised in their manifesto by BJP. Some of the eradicated practices have been there since the Mughal Empire. In 1991, India opened its borders to international trade, which gave the Indian economy a considerable boost. These agricultural reforms have been compared with the 1991 liberalization and expected to provide the farm sector much-needed support.