The article has been jointly authored by Shalini Pathak, Prarthana Verma and Akshita Gulati, Economic Analysts at Arthashastra Intelligence.

The COVID-19 crisis has resulted in a massive shock for the Indian economy pushing it into a growth slowdown, affecting the lives of many. This has further escalated issues of unemployment, inflation and shallow output, falling trade volume. The lockdown has had a significant adverse impact on the economy and livelihood. The shutdown of factories and delays in the supply of raw materials from abroad, especially on account of trade restrictions, has impacted several firms. The channels of transmission of the pandemic’s impact on growth would mainly be external supply and demand constraints, a slump in domestic demand and supply-side disruptions. The government unveiled the 20-lakh crore relief package in an attempt to cushion the shock across various sectors and further announced that no new schemes would be announced till March 2021. The series of measures announced in five different tranches are elaborated below. You can find a detailed analysis of the Monetary measures, included in this package here.

First Tranche

Pradhan Mantri Garib Kalyan Yojana (PMGKY)

A host of measures were announced under phase one targeting businesses, including MSMEs, in addition to additions under the Pradhan Mantri Garib Kalyan Yojana (PMGKY). A relief package of ₹1.70 lakh crore was allocated under the PMGKY targeted towards helping the poor battle the pandemic. Measures including the provision of food grains, fuel, direct benefit transfers, insurance covers, increased allocations under the existing schemes, direct benefit transfers to women under the Pradhan Mantri Jan Dhan Yojana (MJDY), increase in the MGNREGA wages and so on. While these indeed seem helpful, their efficient implementation will be crucial. Also, they would provide some relief in the short term, which is the need of the hour, however, to combat the long-term stress of the pandemic more sustainable policies are needed, so as to efferently allocate state resources. A great emphasis was also placed on the plight of farmers via the PM Kisan Yojana. This has been done to enhance the welfare of farmers amidst the pandemic by front-loading expenditures, employment provisions and other measures. The Prime Minister of India recently announced the extension of PM Garib Kalyan Anna Yojana (which has covered about 80 crore people so far) for further five months till November-end for distributing free foodgrains to the poor and mentioned that the government will incur an additional expenditure of Rs 90,000 crore to provide 5 kg rice or wheat and 1 kg gram every month to the poor.

MSME

The MSME sector contributes almost 40% to the manufacturing output, to help the sector tide over with the and consequent lockdown. The stimulus under the ‘Atmanirbhar’ socio-economic package would provide some relief to these units. The government has proposed to offer collateral-free credit to MSMEs, fully guaranteed by the centre, with a principal moratorium and capped interest payment free of any guarantee fee. These loans for a period of four years, with no repayment obligation on borrowers for a year, will be disbursed by NBFCs. The aforementioned package, however, is conditional to not be available to past commitments and existing liabilities. In addition to providing subordinate debt to be counted as quasi-equity for MSMEs worth ₹20,000 crores, an amount of ₹50,000 crore equity infusion via the fund of funds is expected to enhance growth in the sector. The Credit Guarantee Trust for Micro and Small Enterprises fund has been set up wherein banks would lend to promoters. As per the projection almost around two lakh MSMEs will benefit from this measure. The ultimate aim is to promote capacity building in the sector and enhanced performance.

These measures would obliviate issues of delayed payments, defaults and cash-flow mismatches for MSMEs. The sector which has been facing cash crunch issues on account of the nationwide lockdown and a halt in production investments. Furthermore, the amendment in the definition of MSMEs was undertaken addressing the longstanding industry demand. Now a large number of MSMEs will be able to reap benefits under the scheme without a need to curtail their operations, which they previously practised in an attempt to fall under the desired limit. The addition to turnover criteria is a desirable decision since there is a unit that leverages small capital post large revenues.

Moreover, disabling global tenders would prove beneficial providing a better operational ground and protection. The threshold of default under the Indian Bankruptcy code was also raised to one crore to prevent any initiative of insolvency proceedings against MSMEs, helping them to focus on undertaking operations rather concerning themselves to comply with the norms in a crisis scenario. It will also serve as a measure of goodwill protection, instilling long term trust in the industry. This does not, however, concern with the new businesses looking forward to setting foot in the industry.

The package will indeed significantly help the MSMEs enhance their resilience and competitiveness, the result, however, depends on the last mile implementation. The measures undertaken do focus more on the revival of businesses and enhancing their continuity.

In addition to this, the amendment in Employees’ Provident Fund Regulations will provide relief to the employees, especially. aimed to help the ones out of job due to the pandemic, by allowing them to withdraw a greater amount from their EPF deposits at such times of crisis.

Second Tranche

Agriculture

Several relief measures were targeted towards providing direct support to farmers and the rural economy of the country, under the third tranche of the package. Apart from the provision of the moratorium to approximately 3 crore farmers, on loans worth ₹4.22 lakh crores, concessional credit has been announced via Kisan Credit Cards (KCC) to additional 2.5 crore farmers, enhancing financial inclusion across the sector. In order to ensure maximum gains from the KCC initiative efforts must be undertaken to create awareness about latest technology and credit facilities enabling farmers to realise benefits to the highest potential.

The Finance Minister mentioned that approximately 63 lakh loans amounting ₹86,600 crores have been disbursed to the agricultural sector, between March-April 2020 providing the needed liquidity boost to the sector. While this figure is significant amidst the lockdown,

On the same day, in order to provide liquidity support to the farmers, the FM mentioned that 63 lakh loans worth Rs. 86,600 crores had already been approved between 1st March 2020 to 30th April 2020 in the agricultural sector. Extending such a huge amount of credit in such a short span of time is indeed a big step but again, in order to ensure the repayment, the beneficiaries should be provided with logistic support so they can use this credit amount productively.

Furthermore, to enhance liquidity in the sector an additional refinance support from NABARD of ₹30,000 crores will be extended to Rural Cooperative Banks and Regional Rural Banks that are mainly a credit source to small, marginal and poor farmers. While this would enable them to meet the post-harvest costs of the Rabi season and the sowing costs of the Kharif season. However, just loan disbursements aren’t sufficient to mitigate the losses resulting from disruptions in harvests and procurement, especially in a scenario where farmers face difficulties in making sales at appropriate prices. Moreover monitoring the ultimate beneficiaries is also crucial, when the majority of loans get directed towards large farmers.

Additional support of ₹4,200 crores has been provided under the Rural Infrastructure Development Fund (RIDF) to states during the same month towards improving rural infrastructure. A working capital limit of ₹6,700 crores has also been sanctioned for state government entities involved in the procurement of agricultural produce since March 2020. The motive behind this measure is to ensure that the farmers do not suffer by selling their produce at a lower price, hence, the increase in the limit to ensure greater procurement of agricultural produce.

The Migrant Worker Crisis — Employment and Food Security

The inter-state workers have been the worst hit on account of the pandemic and the subsequent lockdown. While a lot of them managed to return to their homes, a significant number of people were left stranded without employment and basic necessities. A series of measures were announced addressing the concerns of migrant workers. The State Disaster Relief Fund (SDRF) are to be utilized for expenses such as sample collection, screening, setting up additional testing labs, purchase of ventilators and other medical equipment, empowering states to provide immediate relief to the victims, These funds have also been directed towards the provision of meals to residents of Shelter for Urban & Homeless (SUH). Although this is a necessary measure it is not sufficient to sustain the livelihoods of these people. The contribution to the Self Help Groups cannot be understated, in the production of masks and sanitizers providing additional employment opportunities to the urban poor. Revolving funds had been announced, to be disbursed to them through the PAiSA porta (centralized electronic platform for processing interest subvention on bank loans to beneficiaries)so as to provide greater transparency in providing credit and increasing efficiency. Moreover addressing the employment concerns, the scope of MGNREGA has been extended to provide work to returning migrants. While the states and UTs had been advised to provide work, the pressure on the state revenues is something that should be given more consideration as the state funds have been drying up due to the halt in economic activities and hence, would not be economically sustainable for a long time.

A number of measures were discussed under the contraction of 44 labour laws into a labour code such as the universalization of minimum wages national floor wage concept, fixation of minimum wages and appointment letters for all the workers so as to reduce the disparity of wages among different regions within the country and to promote formalization of the sector. Many more measures are also included in the formulation of labour codes which will not only provide the inclusion of a relatively large number of people but will also provide timely benefits for the labourers. Definition of inter-state migrant workers had also been intended to be modified which will benefit the labour even with their movements across different regions, however, the success of these huge labour reforms depends on their successful implementation.

In order to ensure the food supply to the migrants who are not covered under National Food Security Act (NAFSA) or any state cards, the supply of free food grains for two months along with the use of technologically driven public distribution systems (PDS) from any fair price shop in the country under the One-Nation-One-Ration card scheme was announced. As a majority of migrants struggled to go home and faced traumatic situations, unable to provide even two square meals to their families, these measures provided some relief for the time being and a centralized system is further expected to bring much more transparency to the Public Distribution Systems. Given the history of loopholes in the PDS, while this scheme seems impressive, the last mile implementation would be crucial. The mobilisation of resources from demand deficient areas to excess demand areas involving techniques of geographical mapping of migrants to identify pivotal areas.

Furthermore, special credit and working capital facilities aimed at supporting 50 lakh street vendors under PM SVANIDHI have been launched. Capital provisioning, along with technology adoption will indeed help street vendors revive their businesses that had taken a huge hit amidst the lockdown While this seems like a good move aimed at improving employment opportunities in urban, semi-urban and rural areas, however, the success of this initiative depends greatly on the utilisation of funds, tracking beneficiaries, especially in the huge unorganised sector.

Housing Facilities

Addressing the hardships faced by the middle-income families during the pandemic, the Credit-Linked Subsidy Scheme which is a part of PMAY had been extended till 31st March 2021 with the aim to provide subsidized housing to the eligible middle-income families. Another scheme under PMAY for providing Affordable Rental Housing Complexes for migrant workers and urban poor is talked about. A majority of migrants had been struggling in getting houses at affordable rents. This development had been brought in order to convert vacant government-funded housing into affordable rental housing complexes through the public-private partnership. These measures in our opinion would also stimulate the demand for the housing facilities, leading to increasing the demand for raw materials, further leading to employment generation in the sector, thus providing the much -required impetus to the real estate and related sectors.

Third Tranche

The Rural Connect: Agriculture and Allied Activities

Primarily focusing on agriculture and allied activities including animal husbandry, fisheries and beekeeping initiatives, the third tranche of the Atmanirbhar package discussed a series of measures aimed at supporting farmers and livestock and fisheries owners.

The FM in her speech announced several steps undertaken during the lockdown period, for instance, Minimum Support Price (MSP) purchases of more than ₹74,300 crores in agriculture, fund transfers and payments under PM KISAN and PM Fasal Bima with an aim to release additional funds to the farmers. These measures are instrumental in helping farmers to obtain an efficient market for their produce while minimizing the scope for the losses.

Additionally, a financing facility of ₹ 1 lakh crores was announced, with the objective of providing short-term crop loans and long-term agricultural infrastructure loans to mitigate post-harvest losses and wastage occurring due to lack of cold chains and harvest management infrastructure.. To support the micro-food enterprises in order to become more competitive and enable economies of scale to take over, a scheme for the formalization of micro-food enterprises was announced to modernize their production techniques, increasing their capacity and providing them provisions for branding. The support had been on a cluster-based approach targeting specific micro-food enterprises from specific areas for instance mangoes from Uttar Pradesh, tomatoes from Karnataka, saffron from Kashmir etc. with the focus on “Vocal for local with global outreach” program.

Several announcements were made for the fisheries sector acknowledging the hardships faced by the sector. These included relaxation of operations of marine capture fisheries and aquaculture in order to cover the inland fisheries, in addition to allocations amounting ₹20,000 crores made to spur additional employment of over 55 lakh persons and would also fill the critical gaps in the value chains, along with that to the Pradhan Mantri Matsya Sampadaya Yojana (PMMSY), announced during the budget.

Some announcements have been already mentioned in the last Union Budget and were again announced here with more allocation. For instance, National Animal Disease Control Programme aiming to vaccinate 100% of the cattle, goat, buffalo and pig population; measures to promote herbal cultivation mainly for medicinal plants and establishment of a network of regional mandis for their trade, funds of ₹15,000 crores for animal husbandry development infrastructure with a focus to tap private potential investments in the dairy and allied activities, beekeeping initiatives worth.

₹500 crores with an aim to increase their yield which would, in turn, increase the income of the farmers associated with beekeeping activities and at last, the extension of “Operation Green” from tomatoes, onion & potatoes to all the fruits and vegetables along with the 50% subsidy on transportation of fruits and vegetables from surplus to deficient markets as well as on cold storages with an aim to repair the supply chain disruptions in the nation supporting the farmers to sell their produce at better prices which would, in turn, reduce wastages and would increase the affordability of these products to the consumers. These subsidies on resource mobilization appear to be a desirable way to enhance farmer’s reach to markets with deficient supplies.

Reforms for the Agricultural Sector

Numerous governance and administrative reforms related measures were announced. Acknowledging the need to attract more investments in the agricultural sector to make it more competitive and to help the farmers to get better prices for their produce, the Essential Commodities Act (ECA) had been announced to be amended. The removal of the restrictions will lead to the direct purchase of the yields from the farmers by the merchants and would help the farmers during the times of bumper crops. In order to bring relief to the plight of the farmers, some agricultural marketing reforms had been announced helping the farmers to have more marketing and selling choices at attractive prices. The reforms will surely relieve the farmers from the obligation of selling their produce only through Agriculture Produce Market Committees (APMCs) as such restrictions were never there in the industrial produce which results in creating obstacles in the free flow of agricultural produce. As agricultural sector lacks the standard mechanism of predicting the prices of the crops at the time of the sowing of seeds, a framework was announced to be created enabling the farmers to engage with the processors, aggregators and large retailers at an early stage so as to mitigate the risks faced by the farmers enabling them to gain assured returns.

Fourth Tranche

New Horizons of Growth

Besides providing stimulus measures, it has been widely acknowledged that the Indian economy requires restructuring across several structures. With this view in mind, the fourth tranche of announcement focused on unleashing the “New Horizons of Growth”.

The Indian economy is in dire need of policy reforms in order to pace up the investment. From establishing a dedicated Empowered Group of Secretaries for fast track investment clearance, ranking states on Investment attractiveness to launching a revamped viability funding scheme for social infrastructure, the government has announced a series of measures with an intent to restructure the economy. These measures are in line with the government’s flagship programme-Make in India. To instil confidence in investors, promotion of well-performing sectors will be given a priority. The revamped viability gap funding (VGF) scheme would help boost private investment. The VGF will be extended to physical infrastructural facilities in health and education with high economic returns but low financial viability, thus, a capital subsidy forms the government will help realize these social important projects.

Industrial Sector

Several schemes have been launched to ensure the upgradation of industrial infrastructure. Affordable industrial space has been a long-term demand for industries. The Industrial Information System scheme implemented to upgrade industrial infrastructure and provide information on the ranking of industrial parks will help the country to attract both domestic as well as foreign investors. The Industrial Information System will make it easy for global investors to set up their manufacturing locations in India and in turn generating employment. Industrial Information System through GIS (Geographic Information System) mapping will prove to be a great system to provide information and ranking of industrial parks. Besides this, ranking industrial parks seems to be a good way to promote competitiveness among states.

Coal Sector-Specific Measures

In the series of these big-bang reforms, major emphasis was laid on diversifying Opportunities in Coal Sector as well as liberalizing regime in Coal Sector. Though all the measures are visionary, they will take time for the results to be achieved. Given the current COVID-19 impact, commercial mining has been impacted adversely due to economic slowdown and existing regulatory problems. The government’s intention of increasing competition through the entry of private players will result in a reduction in monopoly power in future in coal mining owing to the push in the liberalized sector. Ongoing concerns about environmental degradation as a result of excessive mining this would result in seems to stall the move. However, success is highly dependent on the implementation of these measures as the coal sector has been one riddled with high corruption and obsolete regulatory practices. Introduction of commercial mining is expected to provide some boost to the sector.

Defence Sector Reforms

One major aspect of the announced reforms aims to attract private investment across sectors-mineral, defence, civil aviation, power, space and atomic energy-related sectors. Removing the distinction between captive and non-captive mines with 500 mining blocks being offered in an open transparent auction process will enhance industry competitiveness in the mineral sector. One big announcement pertaining to the defence sector has been an increase in FDI limit in the same from the current 49% to 74%. This is in line with encouraging the Make in India campaign. The government intends to establish 15,000 MSMEs in defence production in the next five years, as mentioned by our Honorable Prime Minister at DefExpo 2020. Currently, India spends a mere 0.6–0.7% of its GDP in research on the defence sector. In order to realize such huge targets, it is important that India stresses on its defence research and development activities. The increase in FDI limit will be beneficial for India only when increased FDI inflows create spillovers in the Indian defence sector. The offset policy in the defence in India can be instrumental here. The government of India has a vision that needs to be supplemented with clear planning and coordinated implementation to achieve the set target of becoming self-reliant in the defence sector.

Infrastructural Reforms

The government clearly outlined the roadmap for PPP model-based airports in order to raise resources for the development of smaller airports in line with the objective of the UDAAN scheme. However, contrary to everyone’s expectations, there were no announcements made for the airlines sector, which has been one of the hardest hit due to the pandemic and lockdown. The airlines in India, which remained shut for almost 2 months, have been cost-cutting and laying off employees and the relatively smaller airline firms have been on a verge of shutting down. The announcement of privatization of Power Distribution Companies in Union Territories in line with the new tariff policies will enable to strengthen industries and bring efficiency in the entire power sector. This will also enable stability in the sector, announced the Finance Minister. A much-lauded measure has been the government’s aim to boost private participation in Space and atomic energy-related activities. In the recent past, India’s commitment towards developing its space sector can be seen by the increased budget allocation to the department. In the Union budget for 2020–2021 an allocation of Rs 13,479.47 crore for the Department of Space (DOS) was announced which is a 7.5% increase from last year — but a 45.2% increase relative to the allocation in 2015–2016. The allocation in 2020–21 is exclusive of the amount outlined for specific projects like Gaganyaan. Restructuring of this sector and opening it up for the private sector can help in raising resources required for increasing innovation via adopting the latest technological know-how and developing high-tech laboratories.

Fifth Tranche

Ease of Doing Business in India

In the last tranche of announcements by the Finance Minister, the emphasis was laid on reforms and improving regulatory practices to improve the business environment in India. This includes measures like Minimum threshold to initiate insolvency proceedings has been raised to Rs. 1 crore, decriminalization of Companies Act violations involving minor technical and procedural defaults, permitting eligible companies to claim credit for CSR spend in excess of the 2 per cent obligation in a particular year against its obligation for the subsequent financial years, a direct listing of securities by Indian public companies in permissible foreign jurisdictions, lower penalties for all defaults for Small Companies, one-person Companies and Producer Companies & Start-Ups. From the creditors’ perspective, they would lose the amounts receivable if the measures help in postponing the IBC Petitions. All these measures would ensure that micro-companies get benefited from the extension of time on compliance. The measures regarding the ease of doing business for corporates would provide them with alternative sources of capital for domestic companies, increase the competitiveness of Indian companies in terms of access to capital, broader investor base and better valuations. However. The risk of mergers and acquisitions will also increase for these companies.

Besides the focus on enhancing the ease of doing business in India, the Finance Minister announced the integral use of technology-driven Systems to ensure Online Education during the pandemic. COVID-19 has undoubtedly accelerated the use of digital technology in our day to day lives. Students are a major cohort that has suffered because of the pandemic and resultant loss of lectures. Hence, the emphasis is being laid on ways of remote learning. However, a challenge for a developing and poverty-ridden country like India would be to ensure access of such means to everyone, especially the unprivileged in rural areas.

One major and rather an unclear announcement in the fifth tranche was related to Public Sector Enterprise Policy for a New, Self-reliant India which mentioned that in strategic sectors, at least one enterprise (and maximum four) will remain in the public sector but the private sector will also be allowed. The Finance Minister announced that the privatization of PSEs would be based on the requirement etc.

Concluding Remarks

The absolute amount of the Atmanirbhar Package, Rs. 20 Lakh crore, though sounds to be huge, only about 1.5% of this package comes as an immediate fiscal stimulus as the majority of the announcements relies partially or completely on the credit guarantee schemes. Given the risk-averse across the economy, the success of credit guarantee schemes is debatable. It is true that India urgently requires the structural reforms included in this package, however, these measures will take time to show results. Also, there has been no relief measure catering to tourism and hospitality as well as aviation, two sectors which bore the brunt of the lockdown and are witnessing mounting losses and layoffs.

Prime Minister Narendra Modi a few weeks ago, launched Garib Kalyan Rojgar Yojana providing employment opportunities to migrants and rural workers near their home. This scheme will only turn out to be successful if there are any capacity-building activities. A recent study by CMIE expresses concerns over the increasing urban unemployment and somewhat a revival of rural employment. Although the Atmanirbhar package has laid emphasis on the relief measures and structural reforms, it is inadequate for the revival of the economy given the large looming crisis that this pandemic has forced it into.