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Explained: Unpacking the Garib Kalyan package

For poor households and small businesses, today’s crisis is a crisis of liquidity. The nationwide lockdown has cost daily wage workers and informal sector entrepreneurs their opportunity to earn. To what extent can the government’s package alleviate their distress?

Written by Harish Damodaran | New Delhi | Updated: March 27, 2020 10:43:20 am
Explained: Unpacking the Garib Kalyan package For the last two days, thousands of migrant workers with no work or money, have been walking the long road from the big cities to their villages which are in some cases hundreds of kilometres away. (PTI Photo)

For economic agents – particularly poor households and small businesses – the crisis today is a crisis of liquidity. The nationwide lockdown, imposed to stop the novel coronovirus in its tracks, has led to scores of daily wage workers and informal sector entrepreneurs losing earning opportunities from their existing activities.

On Thursday, Finance Minister Nirmala Sitharaman announced a Rs 1.70 lakh crore ‘Pradhan Mantri Garib Kalyan Yojana’ relief package to alleviate the distress of those least equipped to bear the cost of staying at home for the larger public interest of battling the COVID-19 pandemic.

The Indian Express examines the effectiveness of the package in meeting its stated goal.

In the current situation, which is the most significant component of the Rs 1.70 lakh crore Pradhan Mantri Garib Kalyan Yojana relief package announced by Finance Minister Nirmala Sitharaman on Thursday?

The increased entitlement of foodgrains supplied through the public distribution system (PDS) is a major intervention. A typical poor household having five adult members consumes 50-55 kg of cereals and 4-5 kg of pulses every month. Currently, the PDS provides 5 kg of cereals per person per month at Rs 2/kg and Rs 3/kg for wheat and rice, respectively. That is 25 kg for a family of five.

Under the package, an additional 5 kg of wheat or rice would be given per person per month, free of cost. The doubling of entitlement, effective for the next three months with the extra grain coming free, will practically meet the family’s entire cereal requirement. Roughly 80 crore persons or two-thirds of India’s population covered under the National Food Security Act will benefit. These poor or lower middle class sections, impacted most by the lockdown, will no longer need to buy any wheat or rice from the market. Further, they will receive 1 kg of pulses per family per month, again free of cost for the next three months. That would meet 20-25% of their total requirement.

How much will all this cost? And how effective will it be on the ground?

The effectiveness will be more in states with well-functioning PDS. That is, Kerala, Tamil Nadu, Chhattisgarh and Odisha — but not Uttar Pradesh or Bihar. The Food Corporation of India (FCI) in 2019-20 has incurred an expenditure of Rs 26.80 for procuring and distributing every kg of wheat, and Rs 37.48 per kg of rice. At an average economic cost of Rs 30/kg, 80 crore persons being provided 15 kg each of free grain (over three months) would translate into an additional outgo of Rs 36,000 crore.

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But there are savings as well. The economic cost does not include the FCI’s expenses in holding and maintaining excess stocks in its godowns. This “carrying cost” — basically interest and storage charges — is estimated at Rs 5.61 per kg in 2019-20. On 12 million tonnes (mt) of grain — which is what 15 kg for 80 crore people would be — that works out to over Rs 6,700 crore. The net outgo for the exchequer will then be well under Rs 30,000 crore. Even after adding Rs 4,000 crore towards giving 3 kg of pulses free to 20 crore families — the estimated economic and carrying cost here is Rs 60-70 per kg — the total outgo will not exceed Rs 35,000 crore. And given that FCI and the National Agricultural Cooperative Marketing Federation of India are now holding some 77.6 mt of cereals (3.5 times more than required) and 2.2 mt of pulses respectively, this is also an effective way to dispose of excess stocks.

What is the other substantial relief measure announced?

Sitharaman has said that LPG gas cylinders would be distributed free to 8 crore poor families for the next three months. Taking an average non-subsidised cylinder price of Rs 800 and three cylinders each over three months for these families, the financial cost will be Rs 19,200 crore. But it is also worth bearing. The least that the government can do for those worst hit by the lockdown is to secure their basic dal, roti and cooking fuel requirement.

Garib Kalyan Yojana coronavirus economic package explained Union Finance Minister Nirmala Sitharaman addresses the press on Thursday. (Express Photo: Anil Sharma)

Will enhancing daily wages under MNREGA by Rs 20, from an average of Rs 182 to Rs 202, help?

Not really, in a lockdown, where there’s little scope to undertake MNREGA works. In today’s context, all MNREGA households — a total of 13.65 crore job cards have been issued, of which 8.22 crore are active — should ideally be given an unemployment allowance. The Finance Minister has claimed that the Rs 20 wage rate hike will result in an additional income of Rs 2,000 per household. This is a theoretical calculation, assuming all job card holders are provided 100 days of guaranteed wage employment under the scheme. When daily wage earners are supposed to remain at their homes, the only way to compensate them under MNREGA is through unemployment allowance. The onus for paying that under the Act is, however, on the state governments. It is unlikely they would make the necessary budgetary provision.

Also read | Holes in the net: Many who have been hit still left out, relief too little

The relief package also seems to have cash transfer components.

Yes, but not very substantial. A total of 20.4 crore of bank accounts belonging to women under the Pradhan Mantri Jan Dhan Yojana are to be credited Rs 500 each per month for the next three months through direct benefit transfer (DBT). That is hardly any recompense for those forced out of work. Nor is payment of Rs 2,000 to 8.7 crore farmers under the Pradhan Mantri Kisan Samman Nidhi anything to write home about. Farmers are already receiving an annual income support of Rs 6,000 under this scheme, with the first installment payment of Rs 2,000 for 2020-21 anyway due in April. There’s no additional financial implication here — at a time when farmers are facing both lower crop prices due to a coronavirus-induced market collapse, and higher harvesting costs on account of labour shortages from the lockdown.

What does the package really amount to?

The main problem for poor and vulnerable households today is liquidity stress. Unlike big businessmen or the salaried middle class, these are people with no balance sheets, reserves, or bank balances. Every day’s loss of work for them means cutting down even basic consumption and going deeper into debt. Free grain can help, but does not address the real crisis, which is of liquidity. They need cash to buy essential things other than just food — and most of them had it till the other day.

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