Understanding The Background Of Atmanirbhar By Modi Self-reliance.

Understanding The Background Of Atmanirbhar By Modi Self-reliance.

Just like his other trademark speeches, this week (on May 12, 2020)PM Modi spoke in front of camera and presented a Self-Reliant["Atmanirbhar"] economic package. The total worth of this economic package is["..INR 20 Lakh Crores (₹ 20,00,000,00,00,000).."]

And,a word cloud analysis done by India Today shows the focus of his speech was, Self-Sufficiency ("Atmanirbartha" in Hindi) and Local In his approx. 20 minutes speech,PM Modi did not give many details. Our Finance Minister Nirmala Sitharaman, willbe responsible for that [presenting details]. Some people welcomed these reforms as significant(important) as the 1991 Liberalisation Reforms of India which were by the Manmohan Singh led Finance

Ministry introduced by the P.V Narasimha Rao Govt. Some people were cautious (alert)about it, waiting for details because many times, a lot ofannouncements of PM Modi have been "High on stylebut low on substance" Like approx. 6 years ago,PM Modi announced that the share of Manufacturing [sector]in India's GDP would rise to 25%. But as per World Bank's analysis during 2017 - 2018,

their share has actually dropped. If we analyse the details presented by our Finance Minister Nirmala Sitharaman during her Press conferences, this [Economic relief] package is NOT worth INR 20 Lakh crores. And, PM Modi might haveoversold their economic impacts which we will bediscussing in this video. [ Unpacking the Package ] To start with, let us try to understandwhat an "Economic Package" means. Economic or stimulus package has economic measures through which the government canboost the country's economic growth.

These measures are of 2 types.

 1. Direct :Cash Transfers
 2. Indirect : Liquidity measures In the         direct measures,

the Govt. can transfercash [money] to farmers and businesses, [directly] to their bank accounts. While in indirect measures, the Govt. can guarantee [assure] loans, i.e (that is) if businesses arenot able to repay their loans the Govt. couldassist (help) them. As India's Economic package hasboth direct & indirect measures, it doesn't mean that our Govt. needsto [actually] spend ₹20 Lakh crores. USA's package which was recently announced,of $2 Trillion was a direct package. Like individuals getting $ 1,200 andan extra $ 500 for each child in the family whereas India's (economic) packageis mostly of indirect measures.

Many experts have alsoexpressed the same thought. When we say India's economic packageis not actually [worth] ₹20 Lakh crores, it is due to many reasons. To start with, out of this  almost ₹8 Lakh crores had already been announced by RBI through their liquidity measures. And, one of these announcementswas made [as early as] Feb 06, 2020.

We should also understand that The Govt. is responsible forFiscal [Govt. revenue related] policy and the Central bank is responsiblefor Monetary [Money related] policy. The Govt. doesn't have any control overthe Central Bank's

[RBI] policy or its assets. Just an annual transfer happensfrom the Central Bank [RBI] to the Govt. Apart from that, no other form of controlcan be exercised by the Govt. [on RBI]. So, our Govt. including theCentral Bank's [RBI] liquidity measures as a part of the government's economic package is misleading.

Besides RBI liquidity measures, this economicpackage also includes ₹1.7 lakh crore package, which was announced by our Finance Ministry,almost 3 weeks back [March 26, 2020]. [..."PM Garib Kalyan (PM's Poor Welfare Scheme) scheme that we want to come out with is expected to meet a total of ₹1,70,000 crores"...] The balance left is₹10.26 lakh crores. For this balance [amount], the Govt.has announced several measures As per estimates,

the actual moneyto be spent by the Govt. may only be between ₹20,000 crores to ₹4.2 lakh crores. This is because most measuresare Loan guarantees and doesn't mean that the Govt.will actually have to spend money. Just like how our Finance Ministry announced ₹3 Lakh crores of collateral-free loans for small businesses (MSMEs). [..."This will (give) facilitate to ₹3 Lakh crores"...] As mentioned earlier, this means our Govt. gives assurance [guarantee] to banks that If businesses are not able to repay their loans,the Govt. would repay those loans. Till Sept 30, 2019, the loan default ratewas around 17%. Even if ₹ 3 Lakh crores worth loansare given to businesses the Govt. will have to pay backonly ₹ 51,000 crores worth loans. Fourthly, most measureswhich were announced do not belong toan economic package. Like, the Finance Minister had announced that ₹ 18,000 crores tax refundswould be given to 14 lakh people But the tax refundbelongs to taxpayers. How can that be includedin an economic package? Similarly, Govt. had reduced the TDS rate[Tax Deducted at Source] from 10% to 7.5%. Similarly with EPF - Employees' Provident Fund, their rates were reduced from 12% to 10%. Through these measures,cash in the hands of people would increase and they would also geteconomic support.

 But these [measures] cannot bemarketed as an Economic Package because this is theown money of people. The Govt. doesn't have to spendanything [on these measures]. Finally, many measures introducedin the package were planned previously. Like the re-financing scheme of (NABARD)National Bank for Agriculture and Rural Development were also previouslyincluded in the budget. Finance Minister had announced that MNREGA(100-day work scheme) wages would be increased. But this was being discussed earlier too. "One Nation, One Ration card" scheme too had been implemented in 12 states by January 2020.

It also doesn't mean that theGovt. is not making any Direct Expenditure. The Govt. has created a fund of ₹ 10,000 croreto support small businesses (MSMEs). The Govt. would contribute ₹ 2,500 croresfor Employees' Provident Fund (EPF). Surely, few direct measures are helpfulbut not sufficient. Like the government's support (credit) of₹ 5,000 crores to 50 lakh street vendors amounting to ₹10,000 per person [street vendor]. This is not a direct transferbut a loan. The street vendors would get this₹ 10,000 when they go to a bank, the bank would collect their applicationand process their loan. The Govt. would also spend ₹ 3,500 crores on8 crore migrant workers for the next 2 months, who do not have Ration cards. This would just be₹ 400 per [migrant] worker. Through PM CARES fund, the Govt. would give6.5 crore migrant workers around ₹ 1,000 crores.

This would just be around₹ 150 per person [migrant worker]. Think for yourself,if this is a sufficient amount ! Apart from these, the liquidity measures toomight not be very effective. Even before COVID-19,our banks had money. As many Economists had expressed, our bankshad money. But they were not lending it. Now, during the environment[situation] of COVID-19, how many businesses would take loansduring this uncertain environment? As the Govt. has guaranteed100% repayment of loans, this could create another problem - Moral Hazard. As the banks knowthis loan is guaranteed [secure], they won't have any pressureto recover these loans. As businesses know thatthe Govt. has guaranteed these loans, they won't have any pressureto repay these loans,

 which could lead to many loansnot being used in a proper manner. Many experts are not satisfiedwith this economic package. Our Govt. is focussing much on liquidity measuresas compared to Direct transfers as our government's financial positionis not very good. Even before COVID-19, [our Govt.] wasabout to miss its tax collection targets. Government's deficit (insufficiency)may increase from 3.5% to 6.2% [of GDP]. Some people claim that India's GDP could shrink by 10%  this year. Due to this, it is estimated that the Indian Govt.could face a loss of ₹ 7 lakh crores. Borrowing too much money from external marketsand printing money, both are not good options. One [option] could lead tohigher borrowing rates of India and inflation could increaseby the other [option].

But Devesh Kapur and Arvind Subramanian, two famous economists, have suggested several strategies through which the Indian Govt. could get more money like reducing non-essential expenditure, borrowing from foreign markets, issuing securities (G-Secs), printing money, a one-time wealth tax on Indian billionaires. The Indian Govt. cannot spend more moneylike US and other developed economies. But as calculated byDevesh Kapur and Arvind Subramanian, the Indian Govt. might have to spend ₹ 10 lakh crores. So they'll have to be creative [innovative]on how to raise [get] this money. General Ne Win was amilitary leader of Myanmar He felt 9 was his lucky number. His astrologer had told him that if he pays close attention to this[his lucky number 9], he would live for 90 years. So one day, during 1987 he replaced the country's 50 and 100currency notes with 45 and 90. After PM Modi's "Atmanirbar Bharat" [Self-Reliant] announcement, tweets started trending about how PM Modi announcedwithin 20 minutes, the ₹ 20 Lakh crore package for 2020 [..."20 Lakhs (crores) during 2020"....] The Govt. might have possibly used General Ne Winas an inspiration for the economic package as there is no reasonable explanation forhow the ₹ 20 Lakh crore package was derived when analyzed in detail. Our Govt. need not be so creativeabout marketing this package. Instead, they'll have to be creative aboutways to raise money for this [package].

Most importantly,our Govt. will have to be honest If you're able to re-watchPM Modi's speech, you might be able to realize thata long recession is very likely. Crores of people are suffering at presentand a lot more people could get involved too. A ₹ 20 Lakh crore package could makea very good headline and garner tweets. But most importantly,our Govt. will have to be honest which forms the foundation of trust between citizens and the Govt. especially during these timeswhere our future is very uncertain. This could lead to the beginning of ATMANIRBHAR BHARAT (Self-Reliant India). .[ How do democracies die? Lessons for India ]
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