Two days into the national lockdown announced to contain the spread of Covid-19, the government unveiled the first set of measures to address the looming economic distress set off by the shutdown of business and destruction of demand.
Union Finance Minister Nirmala Sitharaman Thursday announced a package that aims to provide, for the next three months, free food to the “poorest of the poor”, some income support to farmers and unorganised sector workers, a Rs 50-lakh medical insurance cover for health care staff and a Rs 500-transfer to women Jan Dhan account holders.
While Sitharaman pegged the cost of the package at Rs 1.70 lakh crore, a scrutiny of the measures shows that around Rs 70,000 crore could already be accounted for in existing schemes and funds. The announcements come when the government is hard-pressed to create the headroom for additional spending in a fiscally difficult year.
Officials indicated that a package for the MSME sector and a broader income-support scheme for migrant and farm workers, which was being expected, are likely to follow.
Several state governments including Delhi, Maharashtra and Kerala are among those which have announced measures — including advance pension payments, free food, use of worker welfare funds and minimum income transfers — to tackle the economic effects of the epidemic, which might be funded through higher borrowings.
“We have immediately responded within 36 hours of the lockdown,” Sitharaman said, adding that the government has reached out to those people who immediately require support, the poorest of the poor. She unveiled the Pradhan Mantri Garib Kalyan Yojana to provide free wheat, rice and pulses to nearly 80 crore people across the country, or two-thirds of the country’s population, for a period of three months. Under the scheme, each person will be given, free, 5 kg wheat or rice each month for the next three months.
The government will also provide free of cost 1 kg of pulses per family of their preferred choice (tur, urad, chana), for next three months. While wheat and rice can be provided from the existing buffer stock of the Food Corporation of India, fresh procurement may be required for pulses. Planned income transfers to the farmers are also being front-loaded — with the government providing Rs 2,000 to each farmer during April, covering a total of 8.7 crore farmers across the country.
Free gas cylinders will be provided to 8 crore poor families registered under Ujjwala for the next three months. Daily wage under the Mahatma Gandhi National Rural Employment Guarantee Scheme is being raised from Rs 182 per day to Rs 202 per day with effect from April 1. While the wage hike works to almost 11 per cent, the minister said that it will benefit approximately 13.62 crore families, with the government spending an extra Rs 5,600 crore. However, how effective this will be at a time of lockdown is the question.
The government hasn’t detailed the arithmetic of the Rs 1.7 lakh crore nor explained its impact on the fisc.
“Over Rs 50,000 crore available in mineral fund and workers welfare funds does not look like a fresh stimulus, and income transfers of Rs 17,400 crore to farmers are being front-loaded — these are not extra payments. Similarly, increase in rural employment plan payments will not help now due to the lockdown. But utilisation of these funds will definitely help in alleviating the pain,” a senior economist said.
These funds come under the jurisdiction of states and it’s the unutilised amount in those funds which the Centre is asking states to spend to cushion the COVID-19 impact. This could likely take away another Rs 70,000 crore out of the Rs 1.7 lakh crore.
Income transfers to senior citizens, widows, Jan Dhan account holders, as well as provision of free gas cylinders, wheat, rice and pulses, Provident Fund contribution will cost the Centre extra money. Also, a relaxation of the EPF withdrawal, does not entail any outgo for the Centre.
“Well, at this stage I am more concerned about those who need help,” Sitharaman said when asked about the fiscal impact of the proposals during the press conference. To queries on whether government will provide any relief to industries and borrowers, the minister said that the focus right now was on providing relief to the poor. “We will come back when something is ready (for industry),” she said.
The government will transfer Rs 2,000 into the accounts of farmers under the PM KISAN scheme in the first week of April. Under the Pradhan Mantri Kisan Samman Nidhi scheme, the government provides a minimum income support of Rs 6,000 per year to farmers in three instalments.
For senior citizens, widows and divyang (people with disability),the minister announced an ex-gratia income support of Rs 1,000 (in two instalments), aimed at helping nearly 3 crore individuals. An ex-gratia transfer of Rs 500 into each of the 20 crore women Jan Dhan accounts for next three months is aimed at helping them run their household during this difficult period, Sitharaman said. The government would spend Rs 31,000 crore for this purpose.
In a leg-up to self help groups (SHGs), the Minister announced an increase in the limit for collateral free lending for women- organised SHGs from Rs 10 lakh to Rs 20 lakh to support almost 6.85 crore households. With economic activity coming to a halt and lenders turning risk-averse, SHGs may not immediately benefit from this move.
Even as the lockdown has been announced for 21 days, the relief package aims to provide cover for three months to cover the impact of spread of the virus.
For the organised sector under EPFO, for the next three months, the government announced that it will pay both employees’ and employers’ monthly contribution under the Employees’ Provident Fund (EPF) for workers earning below Rs 15,000 a month in establishments having up to 100 employees. This is estimated to have a financial outgo of around Rs 5,000 crore. “This may benefit 80 lakh employees and expected to incentivise 4 lakh establishments,” Sitharaman said.
The EPF scheme regulations will be amended to allow a non-refundable advance of up to 75 per cent of the balance or three months of wages, whichever is lower. “This is expected to benefit 4.8 crore workers registered with EPFO.
Under the EPF scheme, employees and employers have to contribute an equal amount of 12 per cent of the employees’ basic salary plus dearness allowance. From the employer’s EPF contribution, 8.33 per cent is marked for the Employee Pension Scheme and the remaining to the PF account of the employer. The EPS component is subject to a wage cap of Rs 15,000, or actual basic pay, whichever is lower.
The Centre will direct state governments to use the Welfare Fund for Building and Other Construction Workers, which has around 3.5 crore registered workers. The Centre said states will be asked to utilise the funds available under District Mineral Fund — worth about Rs 25,000 crore — for supplementing and augmenting facilities for medical testing, screening and treatment in connection with the pandemic.
“While details on the financing of the package or the fiscal implication have not be provided, assuming that the entire Rs 1.7 lakh crores is additional expenditure that is to be incurred over the budgeted expenditure for FY21 (of Rs 30.4 lakh crores) and the projected GDP is retained, the fiscal deficit would increase by 0.75% from the budget target of 3.5% to 4.3% of GDP. However, given that GDP growth for the year is expected to decline, the fiscal deficit would widen further,” Care Ratings said.
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