Last But Not Least
Coronanomy — 08
And thus, On 17 May 2020, The Finance Minister appeared for the fifth day consecutively to announce the final set of key measures and also conclude the fiscal stimulus package worth Rs 20 lakh crores. The announcements ranged from rural employment generation to technology-driven education to amendments in Insolvency and Bankruptcy Code (IBC).
More Money to MGNREGA
In my opinion, probably the most significant Rs 40000 crores of the entire 5-day package. Throughout April and May, millions of migrant workers moved from cities to villages. This exodus of such large masses posed monstrous challenges to the government. But this does not end here; you also have to provide jobs to those people. The government recognized and accepted the fact that nothing could entice migrant workers from not going to their hometown. And thus, to provide jobs in villages, an additional Rs 40000 crores were allocated to the Mahatama Gandhi National Rural Employment Guarantee Act (MGNREGA). The total budget allocation for MGNREGA has now surpassed Rs 1 lakh crore as the earlier budget estimate for it was Rs 61000 crores. The Finance Minister Nirmala Sitharaman said that this money would generate close to 300 crore person-days (number of people*number of days of work provided) approximately.
Public Health!
Public health expenditure of the Central government stands at just 1.3% of the GDP. It is abysmally lower than the average spending of the countries clubbed as “poorest”. The condition of public healthcare in India was appalling pre-pandemic, and COVID-19 has only exacerbated it. In terms of the amount of GDP spending in public healthcare, India even ranks below other South-East Asian countries such as Nepal, Sri Lanka, Bhutan, Indonesia, and Thailand.
COVID-19 finally opened the eyes of the Indian government. Thus, the government announced that it would increase the public health expenditure, and health reforms will be made at the grassroots level to better prepare for any such future medical emergency. The government hospitals will have a dedicated block for infectious diseases and a diagnostic lab. And finally, the focus will be laid on ramping up health and wellness centres in villages. However, the government so far has not given any specific plan for its implementation.
PM eVIDYA Programme: Learn from Home
When incomes collapse, what do people do? They cut their expenses. And for poor, that means cutting off the education for their children. It is a severe issue and has long term consequences. Thus, this needed to be addressed. The Finance Minister announced PM eVIDYA programme — a technology-driven initiative for dissemination of education. This programme has several methods such as:-
- E-content and QR coded textbooks for the students and special E-content for visually and hearing impaired under One Nation One Digital Platform initiative.
- One TV channel for one grade for all classes from 1st-12th for students not having an internet connection.
- Use of radio and podcasts.
- Top 100 universities to be allowed to start online courses by 30 May 2020.
- MANODARPAN — another initiative for students, teachers, and parents to address issues such as mental health and emotional well-being
This initiative was the need of the hour as schools and colleges are probably the last institutions to reopen. Education is a sector which should not be compromised as it is the pillar on which the future of the nation depends.
No More bankruptcies!
The government announced measures related to Insolvency and Bankruptcy Code (IBC) that includes the suspension of initiation of fresh insolvency cases up to 1 year. It means that COVID-19 related debt will not be considered as defaults. Along with that, the minimum threshold for insolvency proceedings has been raised from Rs 1 lakh to Rs 1 crore which largely insulates MSMEs from being dragged to courts.
It is good news for corporates and MSMEs, but industry experts raised some red flags as well. Firstly, some unscrupulous borrowers may take advantage of it, which defeats the objective of IBC. Secondly, the firms which were already under stress pre-pandemic may also take advantage of this situation. Thirdly, it puts the banking industry at unprecedented levels of risk, and they will feel the ‘heat’.
Support to State Governments
It was the elephant in the room on the fifth-day announcements. The Union Government was criticized left, right, and centre for not providing enough monetary resources to the states that are at the forefront in this war against the virus. In a bid to help the states, the Union government increased the borrowing limits of the states from 3% to 5% of GSDP (Gross State Domestic Product) for the FY 2020–21 only with a set of conditions. This will make an additional Rs 4.28 lakh crores available to the states for the year. States such as Tamil Nadu, Kerala, West Bengal, and Telangana expressed their concern saying that the central government is wrong in putting conditions for borrowing by the states.
TV Somanathan, the expenditure secretary of India, said that “We have been as realistic as possible. None of these are impossible, undesirable, and none of these will harm the states or the public. Most have been pending for a long time.” The conditions put forward are as follows:-
- Universalization of Ration Cards: The centre has asked states to link every Aadhar card with the ration card and install ePOS (Electronic Point Of Sales) for the use of electronic ration cards at the shop in a bid to push for the One Nation One Ration scheme.
- Power Distribution: Currently, farmers receive free electricity in our country. The centre wants the farmers to pay for the electricity they consume, which will be entirely reimbursed through Direct Benefit Transfers (DBT). This way, the government hopes that farmers will use power more judiciously and wastage of electricity will be minimal.
The states will also have also to ensure that DISCOMS (Power Distribution Companies) bring reforms to reduce commercial and technical losses. - Urban Local Body Revenues: The Centre has asked the states to revise the floor rates for calculating property taxes. There are places in India where property tax rates have not been revised for a decade now while the prices have skyrocketed.
Each municipality will also have to review the floor rates for water and sewage charges as well and have to set a collection target.
The idea is that states have to tap their revenue earning potential; in other words, states have to become ‘Atmanirbhar’. - Ease of Doing Business: The states will have to assess their ease of doing business. They will also have to review state laws.
The path from 3% to 5% is with its twists and turns. First, 0.5% out of the additional 2% is free of any conditions attached to it. In the next 1%, the fulfilment of each condition unlocks 0.25% more. And, the last 0.5% is a reward for meeting 3 out of the 4 requirements.
So, if a state meets 3 out of the 4 conditions above, it is eligible to borrow 4.75% of GSDP.
Overview
Day 5 brought some crucial reforms and measures along with it. The most important of all, in my view, was the allocation of more money to the MGNREGA. PM Narendra Modi said that it is human nature to go to the home in times of crisis. Thankfully, this realization was backed by the government over the five days as there were a lot of credit guarantees and reforms to reinvigorate the rural economy. Corona did what nobody could do in the history of India; that is; finally, the government is focused on improving public healthcare for its citizens. We should definitely appreciate the PM eVIDYA programme as this thing could have been skipped from the package and nobody would have said anything, such is the attention of Indian politics on public education. Amendments of IBC brings relief to the firms, but banks will have to bear its brunt and will face unprecedented heat and NPAs are expected to pile up in huge numbers.
Last but not least, the government increased the borrowing limits with strings attached to it. FM Nirmala Sitharaman said that “We want to make sure that poor benefits from all the money that is being borrowed by the states.” All the conditions are related to other reforms such as giving a push to One Nation One Ration, making DISCOMS and municipalities ‘atmanirbhar’, and to enhance ease of doing business environment.
