Prime Minister Narendra Modi will hold a critical round of discussions with Finance Minister Nirmala Sitharaman today. Sources say the agenda of the meet could include providing final touches to a financial relief package that has been in the works for some time. Government sources have confirmed that “a package with proposals and implications” — way bigger than the Rs 1,70,000 crore worth of Pradhan Mantri Gareeb Kalyan schemes announced in March — travelled some time ago from the finance ministry’s North Block office to the PMO in South Block.

Sources said the package focused on relief, rehabilitation and revival after the lockdown. A senior finance ministry official said, “The financial relief package, given the dynamic situation, has been getting additions and amendments regularly. The PMO has been holding discussions with stakeholders and advisory bodies.”

On Wednesday, the PMO held a three-hour-long discussion with experts, including the chairman of the 15th Finance Commission, the chief economic advisor, the vice-chairman of the NITI Aayog and finance ministry officials. Many participants joined the meeting via video conferencing. Interestingly, the government has even consulted Urjit Patel, the former governor of the RBI, who quit before the end of his tenure following serious differences with the administration.

India Today was the first to report last Friday that a “Big Bang” package may not be the government’s first choice, and that it may go for “targeted packages” for different sectors and segments in a phased manner — and that this may involve active participation of the RBI. This was followed by the RBI governor announcing a slew of measures last week to improve cash flow, liquidity and regulatory relaxation.

FIRST MEASURES COULD BE ANNOUNCED BY MONDAY

A top source said the government may announce the first set of relief measures by Monday, but added: “The final call will be taken by the PM. He may even decide to go closer to the end of lockdown 2.0 and take a decision after or during his meet with CMs of states on April 27.”

The key package is likely to be aimed at the urban and rural poor. This includes migrant labourers, disadvantaged sections of society and micro, small and medium enterprises (MSMEs ), who are the worst hit by the lockdown.

The measures being finalised could include easier access to credit for MSMEs and further cash and food transfers. There’s a proposal for another hike in NREGA payments, and disbursals under the PM-KISAN scheme could be further expedited.

Trailers parked at an inland container depot, in Delhi, on April 20, 2020. (Photo: Reuters)

The upcoming package could be roughly similar in size to the Rs 1.7 trillion-package announced by Finance Minister Nirmala Sitharaman in late March. That package was around 0.8 per cent of GDP — much smaller compared to most other G-20 nations. The U.S. stimulus package was pegged at 11 per cent of GDP, Australia’s was at 9.7 per cent and Brazil’s at 3.5 per cent, according to the data portal Statista.

Indian industry bodies like Assocham and FICCI have been asking for big bang packages ranging from Rs 9 trillion to Rs 23 trillion.

Last week, the government allowed economic and industrial activity to resume in rural areas, where the harvesting season for rabi crops has already begun. This has been done primarily with the intention of “rural and agricultural development and job creation”.

Prohibition will not be entirely lifted, but production units in rural areas, industrial estates, and export zones can reopen if workers stay on the premises or nearby.

INDUSTRY DEMANDS

There’s been little economic activity since the lockdown was declared on March 25. There has been some easing of restrictions since, but the shutdown is to continue till May 3.

The meeting between the PM and the finance minister comes against the backdrop of demands made by industry bodies for a package worth anywhere between Rs 14 lakh crore and Rs 16 lakh crore.

Measures to help large businesses and specific sectors like automobiles are under consideration.

Sources say that the overall cost to the exchequer of all the “booster shots” may range between 2% and 4% of the GDP which works out to a total of 5 to 7 lakh crore.

PACKAGE MAY BE STAGGERED

Experts who took part in the meeting with the PMO told India Today the overall package may be staggered and even be timed with the easing of the curbs in lockdown 2.0.

One of the core team officials admitted that though the lockdown has been extended for 19 days, the restrictions may not vanish after May 3. “The pandemic and restrictions may not vanish completely by the end of the first half of this year. This would mean a strategic opening up of Covid-19 free zones and sectors, which can ensure social distancing protocols.”

A worker at an undergarment factory that was re-opened after a weeks-long shutdown, in Kolkata, on April 20, 2020. (Photo: Reuters)

The biggest unfolding crisis is in the small and medium industries. Manufacturing, other industries and services account for 42% of employment and almost 70% of the GDP. A senior government advisor told India Today, “The government plans to avert a situation in which the cash crunch converts itself into insolvency for small and medium scale industries. Their balance sheets are in tatters and they may belly up by the time the extended lockdown ends.”

PROPOSALS

The government is actively considering addressing both the supply and demand side of the crisis.

Sources say the fiscal relief measures may have strong elements to address the workforce and migrants like those who resorted to protests in Surat or attempted to return home in large numbers in Mumbai and Delhi.

A) The key proposals on the government’s agenda could be “payroll support” for MSME employees. Payroll support has the potential to immediately address the large-scale retrenchment and job losses being reported.

Payroll support via DBT will reduce he burden on small and medium business and put money in the hands of the labourers, which can trigger demand for goods produced by industries and businesses expected to start working with social distancing protocols.

The target could be nearly 10 crore workers. The labour ministry has already cleared deferred payment of employers’ contribution in the EPF to reduce burden on MSMEs.

B) For the service sector, too, the government is considering some relief. A senior official said, “The services sector is a huge employer. Unlike manufacturing, they can’t recover the losses they have incurred during the lockdown. For example, the airlines and hotels can’t make up in future for the seats and rooms not sold in this period. They need help as already, most airlines have announced salary cuts for employees or sent a certain percentage of them on unpaid leave.”

C) The government is actively working on a proposal to augment demand. A senior official said, “The government has to put money in the hands of the poor and needy.”

The target of the proposal are expected to be the bottom 30-40% of the economic strata. This includes daily wagers and migrant labourers.

In a recent article, ex-Finance Secretary Subhash Chandra Garg estimated that the government needs to spend nearly Rs 60,000 crore to provide at least Rs 2,000 in direct cash transfers to nearly 10 crore workers for three months.

D) There is a radical suggestion proposed by the government’s advisory mechanism to use the crisis to create a uniform GST rate, instead of multiple tiers. A senior government official said many segments like the automobile industry face high tax slabs, and a reduction in GST slab to a 12-15% uniform level is expected to make items cheaper and boost sales, which in turn will help manufacturers sell greater volumes and recover losses.

But this move will need the nod of the states, which get a large chunk of their individual revenues from liquor and fuel sales.

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