Teaching people to fish

The strategy appears to be to use the present crisis for a complete overhaul of the grounded economy

What’s in a number? For some, it means a lot. For others, it reveals nothing. The reality, however, lies somewhere in between. What do we make of the Rs 20-lakh-crore package announced by the Modi sarkar? The opinion is understandably divided. The interpretation takes assorted forms, depending upon which side of the divide – political and otherwise – you are in.

The headline-setting Modi package was followed by a five-day media series with Finance Minister Nirmala Sitharaman in tandem with her MoS rolling out sectoral packages. There was a method in the entire exercise. The strategy appears to be to use the crisis triggered by Covid-19 for a complete overhaul of the grounded economy. If the grand number had inflated the expectation, the subsequent announcements punctured it. Looking at it from the prism of immediate necessity in the wake of prolonged lockdown, the package is a disappointment.

Justified Anger

A vocal section of society – besides the opposition – is convinced that the Centre could have done well if it had transferred cash to the needy. With the lockdown robbing them of their livelihood, this largely angry class felt that cash transfer is the least that the Centre could have done to mitigate their misery. There could be fiscal and other unexplainable logic as to why the Centre did not do it.

Nevertheless, it has triggered an endless debate with many opposition parties jumping into the fray for a political slugfest. With the virus cases increasing rapidly by the day, exiting the lockdown is turning out to be an increasingly tough process. The cash transfer demand must be understood in this abnormal context. Individual workers are not the cause of the lockdown. Ipso facto, their anger is justified.

The economy had started hastening its southward journey much before the coronavirus entered the country. The drastic deceleration in growth had even forced the Reserve Bank of India to slash interest rates and pushed the government on the edge. There were strident suggestions for quick-fix action to revive the dormant demand. The virus has only accentuated the misery and the economy has slipped into a state of stupor. Caught in a pincer-like situation, the challenge before the Modi government is to virtually reboot the economy.

Enabling Economy

The Rs 20-lakh-crore package must be read squarely in this standstill background of the economy. Free dry ration and direct benefit transfer have been employed by governments – both at the Centre and States – to address the immediate worries of the people at the margin. Are they adequate?

The five-part package appears to be an attempt to spread out a number of enablers, which could facilitate gradual nursing of the economy back to health. A substantial increase in allocation to MGNREGA and hike in daily wages for all registered workers should immediately provide jobs and release cash. Migrant workers who have chosen to return to their natives can also enrol for MGNREGA work.

When the dust settles down post the lockdown, the mindset change in migrant workers would have a significant bearing on their willingness to return to their guest-States. How will this impact industrialisation initiatives of these guest States is difficult to predict at the moment. One can sense a new dynamics coming into play in the days to come, given the way these migrants were treated in their guest-States.

Provision of bank funding for street vendors could be a game-changing move. There are several micro initiatives such as the extension of Kisan cards for fisher folks, which can trigger significant positive fall-outs on the credit ecosystem.

Government Guarantees

Availability of funds hasn’t been an issue what with the RBI continuously easing its policy to leave enough cash with the banking system. The problem, however, has been one of reluctance to lend. This is now sought to be addressed with the government stepping in to provide guarantees for loans.

In the whole package, guarantees are either not understood or kept out of discussions deliberately. The liability of an insurer is a contingent one. It does not occur immediately. It is activated only when the incident occurs. Likewise, the guarantee given by the government is a contingent one and paid only when the default occurs.

A host of happenings in the not-so-distant past has enmeshed micro, small and medium enterprises (MSMEs) and the non-banking financial companies of especially smaller variety. Covid-19 only compounded their misery. They form the backbone of the economy in terms of their job provision and last-mile credit disbursals. Collateral-free and government-guaranteed fund assistance are indeed intended to re-build the credit line to them. For very many reasons, the banking industry has been largely reluctant to lend to them.

Comfort to Banking

In a way, the package is an attempt to provide some sort of comfort to the banking sector. This should rid them of their hesitancy. In a reboot kind of a situation, comfort-induced low-cost credit will help rebuild the broken supply line, which will trigger cascading action on the production, job and demand fronts. In the process, the chain gets reconnected and revitalised. Guarantees are typically like the proverbial Rockfeller cheque that helps spur a distraught person into positivity.

In times of crisis – an unheard proportion of the kind that one is experiencing now – rights and wrongs could endlessly be dissected. For years, parties across the spectrum have liberally used freebies for vote bank politics. The public often is not aware that the freebies are doled out by quietly picking their pockets in an invisible way through indirect taxation. Of all taxation, indirect taxation is the most regressive. It hurts them the most. For, they pay tax on everything they buy. Since the way it is done does not have a visible direct impact, they bear the burden of it without realising!

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime. So goes a saying. This proverbial wisdom is time-agnostic indeed.

(The author is a senior financial journalist based in Chennai)

Now you can get handpicked stories from Telangana Today on Telegram everyday. Click the link to subscribe.

Click to follow Telangana Today Facebook page and Twitter .