After A Long Wait, Modi Announces Economic Relief Package

Be vocal about local, Prime Minister Narendra Modi said on Tuesday night as he promised a large financial package to rescue India from an ongoing economic slowdown that is now a pandemic-induced economic crisis. The Rs 20 lakh crore package, including earlier spends announced by the Finance Ministry and Reserve Bank of India, will aim to build a self-reliant India, the Prime Minister said, offering as illustration the recent ramp up in production of medical masks and protective gear.

Naushad Forbes said he was encouraged by the promised size of the package but cautioned that self-reliance be used to address emergency needs and not return the economy to the “bad old days” of the 1970s. “I worry about the talk of self-reliance. In the 1970s, self-reliance went together with protectionism. It will be terrible if we go back to those days of autarky and being inward looking,” said the co-chairman of Forbes Marshall Pvt. Ltd. and past president of industry chamber CII.

This economic package will serve as bridge between the crisis phase and recovery phase, said DK Joshi, chief economist at Crisil Ltd. “It doesn’t look like a front-loaded fiscal package. I expect it to be spread over the course of the year,” Joshi said when asked about the impact on the macro economy.

The Prime Minister said the package would cover various aspects of the economy, ranging from land, labour, liquidity and laws and would bring relief to businesses of all size, farmers, middle class Indians and entrepreneurs. He said Finance Minister Nirmala Sitharaman would announce details in the days to come.

Given that India has limited state capacity, it would be best if the government focused on a few big things and implemented them well, Forbes said. On his list of immediate action that should be taken...

• More direct income transfers to people at the bottom of the pyramid.
• Government loan guarantees for enterprises.
• And pay pending dues to states, private and public enterprises and MSMEs.

It’s a bad idea for government to generate demand directly, he said, opposing, for instance, any Goods and Services Tax rate cut. This would have a very limited impact, according to Forbes.

On the issue of funding this economic package, Joshi said he expected a restructuring of already announced expenditure, higher borrowings and monetising of deficits even. “It will be huge challenge to raise resources at this juncture,” he acknowledged.

While Indian industry is in early stages of resuming production, after the central government announced a staggered return-to-work plan last week, it will be challenging to resolve the labour issue. A nationwide lockdown was announced on March 24 with no advance notice, stranding migrant labour in their workplaces. With all production activity halted, scarce food and no money, many began returning home on foot, walking hundreds of kilometres as the central government refused to restart inter-state bus or railway services. Eventually they’ve been restarted now, but the migrant labour issue has been handled terribly, Forbes said. “If we want migrant labour to come to cities and work, they should also be allowed to leave on their own terms.”

We must reform labour laws—they must have less protection and more flexibility for formal labour, and more protections for informal workers, he pointed out.

Watch | Naushad Forbes and DK Joshi in conversation with Ira Dugal and Menaka Doshi