The 20 Lakh Crore Economic Package: A Critical Analysis

Recently, the Indian government announced a 20 lakh crore economic package, amounting to a significant 200,000 crore rupees. However, the practical implications of this package vary widely. Here, we analyze the key components and their potential impact on various sectors.

RBI Announced Package

The Reserve Bank of India (RBI) played a significant role in the package by announcing an 8 lakh crore package. This is crucial for the Indian economy as it primarily aimed to support banks with additional liquidity to lend more to businesses and individuals. Let's delve into the specifics:

Objective: The RBI's strategy was to provide banks with more funds to increase their lending capacity, which could potentially create more jobs and stimulate spending. Implementation: The package was initiated before the onset of the COVID-19 crisis and extended after the lockdown. This timing was strategic to maintain a positive public image of the government. Impact: The RBI package is more beneficial for individuals and businesses that already have a steady income. It may not be as useful for those looking for new loans without an established income stream.

First Day: 594550 Crore Announced

The first day of the package saw the announcement of 594550 crores. This segment focuses on specific sectors like Micro, Small, and Medium Enterprises (MSMEs), DISCOMs, and the Employee Provident Fund (EPF).

MSMEs: 3 lakh crore was designated to support over 45 lakh MSMEs, which contribute significantly to employment. The central government provided these loans without security, allowing business owners to delay EMI payments for a year. This is a significant relief for businesses struggling during the lockdown. DISCOMs: 90000 crore was allocated to electricity distribution companies to help offset the losses due to reduced electricity demand during the lockdown. EPF: The government made a temporary adjustment to the EPF, providing 24% contribution for those earning below 15000 and reducing it to 10% for those above 15000 from June to August, effectively adding 2% to their contributions. TDS: A reduction in TDS collection by 25% for the current financial year, impacting 50000 crore, offering some relief to taxpayers but not providing significant benefit to employees.

Second Day: 310000 Crore Announced

The second day saw the allocation of 310000 crores. This package primarily benefits migrant workers and farmers:

Migrant Labourers: Ration will be provided for the next two months to approximately 20 crore migrant workers, regardless of having a ration card or not. This is a positive step, though implementation will depend on state governments. Kisan Credit Card (KCC) Program: 2 lakh crore was allocated to provide loans to farmers under the KCC program, which has been in place for some time. Emergency Loan: 3 crore farmers will receive 30000 crores under the Emergency loan scheme, with each farmer receiving 10000 Rupees. The details of the basis for this loan are not clear. Home Loan Subsidy: Extensions to the existing home loan subsidy scheme, promoting real estate investments, which is criticized for being overly promotional.

Third Day: 150000 Crore Announced

On the third day, 150000 crores were allocated for agricultural infrastructure development, a long-standing requirement. While this is beneficial for long-term agricultural growth, it is considered less pressing in the current crisis context.

March 27th Announcements

On March 27th, an additional 192800 crore was announced, including:

Foreign Exchange: 5000 crores under the Provident Fund and 11000 crores under the National Disaster Response Fund (NDRF) were considered crucial. Additional Programs: Free ration for women in Jan Dhan accounts, free gas cylinders, and financial support for seniors, physically-challenged individuals, and widows. These are straightforward and beneficial measures.

Conclusion

The 200000 crore package primarily adds 186000 crore of new money, with most components already in the annual budget. There is a perception that additional funding could have been allocated directly to those most affected and that existing welfare schemes could have been utilized more effectively. The 20 lakh crore package should be seen more as a publicity stunt than an effective crisis response.

In summary, while the package aims to provide broad support, its efficacy varies widely across different segments of the economy. It is essential to provide targeted relief that can address immediate needs effectively.