On Thursday, Finance Minister Nirmala Sitharaman unveiled the third instalment of the Atmanirbhar Bharat package aimed at addressing the economic fallout from the COVID-19 pandemic. The measures follow a multi-pronged approach, aimed at generating employment and encouraging formalisation of the work force in urban areas, expanding the scope of distress employment provided in rural areas, easing the flow of credit to stressed parts of the economy, expanding the incentives offered to boost domestic manufacturing, and kickstarting the real estate cycle, among others. The ministry has pegged the total fiscal outgo due to these measures at Rs 2.65 lakh crore, though the actual and immediate outgo is likely to be only a fraction of this amount.
The focus of the announcements this time has been on incentivising job creation. Providing incentives to EPFO-registered firms to hire more employees could lead to job creation and formalisation of the existing informal work force in urban areas. In rural areas, given that demand for work under MGNREGA continues to remain well above last year, and what is being provided so far, the additional allocation of Rs 10,000 crore to the Pradhan Mantri Garib Kalyan Rozgar Yojana is welcome, though it may have to be augmented further. Similarly, the focus on the real estate sector, one of the biggest non-farm avenues of employment, is also a step in the right direction. The steps announced could help stressed developers liquidate inventory, and given the sector’s strong backward linkages, could help kick-start broader economic activity. Similarly, expanding the production-linked incentive scheme to cover 10 sectors could, over time, help create an efficient domestic manufacturing ecosystem, though its success depends on how creatively the scheme is designed. Extending the Emergency Credit Line Guarantee Scheme till March is a good step, as is the inclusion of 26 stressed sectors (including health) identified by the Kamath committee — though ensuring credit off-take of previously announced schemes amongst the poorest sections must be a priority. Considering that central government capital expenditure in the first six months of the year was actually lower than last year, to what extent the proposed increase in spending is absorbed this year is debatable.
The finance ministry’s view of the state of the economy suggests that it believes a strong and durable recovery is taking hold. This is partly in line with the results of a study carried out by economists at the RBI, who now expect the economy to contract at a slower pace in the second quarter than what was expected before. Yet whether the better than expected performance of the economy in recent months is sustained beyond the festival season remains to be seen. The RBI study mentions several risks to growth, principal among them a second global COVID-19 wave which could impact global growth, and, as a consequence, India’s exports, and the intensifying stress amongst households and corporates in India.
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