Hyderabad: The government finally offered much needed relief to offset the lockdown impacts upon the poor.
Costing Rs 1.7 lakh crore, the fiscal measures focus solely on income support, distributed in kind and cash, for one quarter (April-June).
Various initiatives packaged as PM Garib Kalyan Scheme cover sections of the society living on the margins – unorganised sector labour, construction workers, widows, senior citizens, etc and intend to provide income support through direct benefit transfer and food security through the public distribution system.
The government may have to step this up, perhaps with another round at later stage, and especially if the duration of lockdowns extends, about which there’s enormous uncertainty.
It is also notable that some lockdown costs devolve upon the affected, e.g. pension withdrawals (retirement savings), and the states. Both - size and distribution of costs - of fiscal relief measures reflect the government’s cash crunch.
What are missing?
The relief package does not address the business or producer segment, some of which especially need support at this point. Neither the MSMEs, many of which survive on wafer thin margins from daily sales, nor the airlines, travel, hospitality, etc, that are severely affected.
The limited, focused nature of the package suggests these may be dealt separately, at a later stage, although there’s no guidance or clarity on this.
RBI’s measures
However, the financial side of the lockdown damages is mitigated by the RBI’s firing of several and simultaneous rounds of monetary and non-standard measures - a 75bps reduction of the policy rate, incentives and measures to encourage banks to lend and not retain excess funds, moratorium on principal and interest payments for three months on term loans, whose non-payment to banks and NBFCs will not be considered as non-performing assets (NPA), being the main ones.
These are ample to help tide over the cash flow crunch faced by firms due to the lockdowns, e.g. temporary reprieve from debt-servicing and cheaper credit availability.
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If the temporary monetary support is sufficient to avert insolvencies of weakened firms will be known only with time.
Certainly their recovery has to be sufficiently robust enough to service their existing debts, and borrow fresh credit to resume normal activities.
The current fiscal support, which excludes business sectors, does not suggest the rebound could be that strong.
But once more, the uncertainty of a fast-changing situation cannot be emphasized enough. The government could yet come out with some limited bailout support for business segments perhaps.
(Article by Renu Kohli. She is a New Delhi based macroeconomist. Views are Personal)
