Editorial: Stimulus 2.0- Adding up the numbers

The headline number was certainly larger than most people had expected, but as in most cases, the significance of an announcement lies in the detail. One thing is clear though. A sum of Rs 20 lakh crore, amounting to 10 per cent of GDP, is sizeable even if it includes the liquidity boost by the RBI in recent months (estimated at anything between Rs 5 and 8.5 crore) and the Rs 1.7 crore to be spent on the disadvantaged under the Pradhan Mantri Garib Kalyan package.

What remains unclear – even after Finance Minister’s Nirmala Sitharaman’s press conference – is how the numbers will add up to that magical figure. For one, the stimulus package is to be announced in tranches over the next few days. And for another, going by the announcements, the actual cash outgo will comprise only a somewhat modest part of the package, possibly less than a quarter of the total amount. But this is hardly a surprise. The same is true of the stimulus packages announced by other countries such as the United Kingdom and the US, where foregone revenues, credit guarantees, and provisions of liquidity are all added up to make up what seems like a very big number. But the paucity of direct fiscal measures will be something that the Opposition highlights in its attempts to criticise the package.

The long preamble before the Finance Minister’s announcements – which basically dwelt on the Modi government’s various initiatives on behalf of the poor – seemed like preparation of the ground for the slew of announcements that were directed principally at businesses and the middle class. The measures that were announced, focussed mainly on the ailing MSME sector (as well as NBFCs and discoms). The most radical proposal was that loans to the tune of Rs. 3 lakh crore would be provided free of collateral to MSMEs and SMEs and if the banks can be stepped upon to lend, this could provide a much-needed kickstart to the bottom of the business pyramid. There was a faint echo of the self-reliant India slogan raised by Modi, in the form of the announcement that global tenders will be discontinued by the government for amounts over Rs. 200 crore.

On the whole, the liquidity measures announced were in the form of credit guarantees, faster processing of refunds, and extensions for compliance. If the stimulus package is going to focus as Modi said on land, labour, law, and liquidity, the first tranche of announcements has only addressed the last of the Ls. More importantly, if the package is going to be a blueprint for reform, then it will have to tackle the tricky first three – something the NDA government has fought shy of doing despite the promises held out after coming to power in 2014. So, it may well be that the most significant announcements that signal reform are going to be made in the days to come.