FM's Relief package is essentially very small – PART 1

Note: Readers of recent article (China’s strategy through COVID-19) has requested to publish articles in short. So as this article will be a bit lengthy as we have explained every aspect of FM’s relief package in view for poor people, this article has been published in two parts.

Finance minister Nirmala Sitharaman announced a relief package saying it is for vulnerable people. She haven’t defined who vulnerable people are. Going by her speech I am assuming it is for poor people because when reporters asked her about MSME’s, she said, “if there is any need, we will see it”. Sadly this tells us where this government is going wrong in economy. It’s the assessment of the situation. The spine of the MSME has been terribly destroyed by demonetization, burden on them has increased after GST, many people have lost jobs in MSME’s due to slowdown, many factories got shut, even after these situations FM sees no need.

Lets comeback to the package she announced. People who have seen this announcement in news would be happy after her speech by assuming that the package has several things that the poor needed in this lockdown. But one should observe the numbers when Finance minister speaks because finance is a play where you can be fooled by showing big numbers, but they may not have any impact in real sense.

Packages for Poor

Basically I have categorized poor people into three categories: 

1. Daily wage earners

2. Unorganised sector workers/employees and self employed people

3. Landless agricultural labour

So let’s look at them one by one.

Daily wage earners and registered site workers.

Daily wage earners

Registered site workers

In India there are roughly 140 million people under this category. For them FM has announced that women who work as daily workers would get 500 rupees per month in their Jan Dhan accounts. Many men in this category work in different cities. They migrate in search of work from one city to another by leaving their families in villages. If they work under construction sector they would get registered for such work. These men are then called as registered site workers. Therefore, if the wife withdraws money from her account for her daily needs, then think of husband’s plight or vice versa. Assuming every man is married in this category, he would be starving for days so that his family in village would afford food. Also remember, due to lockdown he would not get any work for next 21 days. Also 500 rupees is a small number and inflation is growing rapidly day by day.

Unorganised sector workers/ employees and self employed people.

The majority of MSME’s are in the unorganized sector. I have discussed them before and the self-employed are mostly dependent on loans from banks. Interestingly, the RBI has announced some relief measures for the temporary ban on EMI’s, loans and advances, the amount of overdraft etc for workers in this category. It has also announced certain measures which gave banks only one option that is to increase their credit services to MSME’s by reducing repo rate to 4.4% from 5.15% and reverse repo rate to 4% from 4.9%. From past several quarters although RBI has reduced its interest rates by several base points, banks were not transferring such benefit to customers, factories or companies. This left RBI with no other option but to make banks give loans to MSME’s. Will these measures work? Surely they do but we don’t know to what extent the impact will be.

To be continued in Part 2 – ANJAN KUMAR (Opinion expressed by the author is his personal. The Generalist Insights take no responsibility of the opinion expressed.)