Modi govt needs to put money in the hands of the people
The economic package of Rs 20 lakh crore announced by the Modi government does not give direct cash stimulus to industry and commerce as most of the European nations have done in order to lift their national economies from the pit the coronavirus has thrown them into. As the package is indirect stimulus its impact might take a longer time to show. Economists and ordinary people alike might not be sure of the ways to compute the positive results of the package without taking other factors into account in the future. As of now, the package definitely aims to spur liquidity and security for the industry, particularly the micro, small and medium enterprises (MSMEs) with the guarantees on loans, collaterals and insolvency. The package gives Rs 6 lakh crore for providing relief and improving credit flow to MSMEs, non-banking finance companies and housing finance companies. It has to be seen how much healthier the Rs 6 lakh crore from the government of India makes these sectors. Sometime ago, the RBI had announced a package of Rs 8 lakh crore as a series of measures to provide liquidity support to non-banking finance companies, mutual funds and housing finance companies.
The MSMEs have been hit very hard by the lockdown. So, it would be hard to tell the speed at which they can start running because they have to first get back to their feet. The year or two before the coronavirus hit the economy, a host of problems had been dragging the trade and industry down across the country. One of the major negative factors was the fall in demand. About two-thirds of India’s economy is driven by consumption, and in the absence of high consumption, producers and traders of goods from the top to the down level were facing erosion of their turnovers and profits. Sadly, the package announced by the Modi government does not address the fall in consumption. The package does not put money directly in the hands of the middle classes or the lower middle classes or the farmers. The farmers have been given Rs 2.3 lakh crore credit stimulus, but that is again an indirect stimulus whose impact may take time to show, if it at all does.
The crying need of the hour was to push demand in order to spur supply which in turn would make the liquidity and guarantees to the MSMEs seem meaningful. The coronavirus has literally proved like yet another avalanche of troubles for the producers of and traders in automobiles, consumer durables such as appliance and consumer electronics, such as smartphones, washing machines, television, refrigerators and air conditioners and retail goods such as clothes, watches and jewellery. The consumer markets in urban and rural India are driven by the upper class with high disposable incomes, a huge middle class with respectable incomes, farmers who with their cash crops are earning more than they did from the market as well as the lower urban and rural classes that earned wages enough to be at the tail of the consumer queues.
The country’s vast consumer market was what fuelled the dreams of the Indian industry and commerce as well as the global players in various goods and segments. However, for the past two or three years, the buying sentiment was elusive. The erosion of profits owing to that led the industry and commerce to cut down on their costs, which meant layoffs, drop in salary levels and cut-down on travel and other expenses of the executives. This had a chain effect. What coronavirus did was to force the industry and commerce to resort to heavy cost-cutting to stay afloat in the troubled times. The cost-cutting has meant job losses, pay cuts and freeze on expenditures. Unemployment among middle and working classes, which was rising even before coronavirus, has touched an extremely high peak. In view of these circumstances, the Modi government was expected to announce a package that would create, support and sustain employment. That would have meant putting money in the hands of the people in order to help them maintain the minimum standards of living as well as push demand for various goods, a push that would have set the wheels of industry and commerce rolling.