Expert Speak India Matters
Published on Jul 08, 2021
Our stressed economy needs direct fiscal stimulus measures

On 28 June, Union Finance and Corporate Affairs Minister, Nirmala Sitharaman, announced another set of economic measures—ostensibly to provide relief to sectors affected by the second wave of the COVID-19 pandemic in the country.

As has been the trend in the past one year, a large part of these latest economic measures are new loan and credit schemes. The relief package includes reiteration of one budget announcement—Reform-Based Result Linked Power Distribution Scheme. This is a scheme that is supposed to be implemented from 2021-22 to 2025-26, with a total outlay of INR 303,058 crore—of which the central share is INR 97,631 crore. This amount is included in this package. So, this is not an additional amount and cannot be deemed as a stimulus.

The new credit/loan guarantee/insurance schemes are as follows:

  • INR 1.1 lakh crore loan guarantee scheme for COVID-affected sectors: This will include INR 50,000 crore for health sector and INR 60,000 crore for other sectors, which includes the scheme for tourist guides and other stakeholders.
  • An additional INR 1.5 lakh crore for Emergency Credit Line Guarantee Scheme (ECLGS): This is expansion of earlier ECLGS, which was launched as part of Atmanirbhar Package in May last year.
  • Credit Guarantee Scheme to facilitate loans to 25 lakh persons through Micro Finance Institutions (MFIs): This is a new scheme directed at the smallest of borrowers. However, the amount allocated is a paltry INR 7,500 crore.
  • INR 33,000 crore support for Project Exports through National Export Insurance Account (NEIA): This makes provisions for insurance covers to buyer’s credit, given by EXIM Bank, to less creditworthy borrowers.
  • 88,000 crore provision for Export Insurance Cover: An infusion of equity over five years is mooted in Export Credit Guarantee Corporation (ECGC) to increase export insurance cover by the said amount.

Curiously, the relief package also includes the next two years’ allocation of INR 19,041 crore for the broadband project under BharatNet. There are other allocations like the INR 100 crore for free one month tourist visa and INR 77 crore for revival of North Eastern Regional Agricultural Marketing Corporation (NERAMAC). Apart from the negligible amounts, the short-term immediate efficacies of these schemes to boost output and employment remain questionable.

If these allocations, along with the loan/insurance schemes and already budgeted amount for Power Distribution Scheme, are excluded from the total INR 628,993 crore (as claimed by the government) – then actual size of this relief package comes down to INR 123,644 crore, less than one-fifth of the claimed amount (Table 1).

TABLE 1: Break-up of 28 June 2021 Relief Package
Scheme  Period Amount (Rs. Cr.) Remarks
Economic Relief from Pandemic
Loan Guarantee Scheme for COVID Affected Sectors 2021-22 110,000
Emergency Credit Line Guarantee Scheme (ECLGS) 2021-22 150,000 Expansion
Credit Guarantee Scheme for Micro Finance Institutions 2021-22 7,500
Scheme for tourist guides/stakeholders 2021-22 - Covered under loan  guarantee scheme
Free One Month Tourist Visa to 5 Lakh Tourists 2021-22 100
Extension of Atma Nirbhar Bharat Rozgar Yojana 2021-22 -
Additional Subsidy for DAP & P&K fertilizers 2021-22 14,775
Free food grains under PMGKY from May to November, 2021 2021-22 93,869
New Scheme for Public Health 2021-22 15,000 Scheme outlay- INR 23220 Cr; Central share- INR 15000 Cr
Impetus for Growth & Employment
Release of Climate resilient special traits varieties 2021-22 -
Revival of North Eastern Regional Agricultural Marketing Corporation (NERAMAC) 2021-22 77
Boost for Project Exports through NEIA 2021-22 to 2025-26 33,000
Boost to Export Insurance Cover 2021-22 to 2025-26 88,000
Broadband to each village through BharatNet PPP Model 2021-22 to 2022-23 19,041
Extension of Tenure of PLI Scheme for Large Scale Electronic Manufacturing - Time extension
Reform Based Result Linked Power Distribution Scheme (Budget Announcement) 2021-22 to 2025-26 97,631 Scheme outlay - INR 303,058 Cr; central share - INR 97,631 Cr
Total 628,993
Source: Press Information Bureau (PIB)

The only direct economic relief in this package comes from the extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY). Under this scheme, free foodgrains will be provided to eligible citizens from May to November 2021. INR 93,869 crore has been allocated for this extension (Table 1).

In a way, this one (actual fiscal relief measure) is garnished by sundry other loan schemes and inconsequential announcements, and then presented as a package. If allocation for PMGKAY extension is taken out from the actual size of the relief package (as calculated earlier), then the amount will further diminish to INR 29,775 crore—an amount not worth mentioning compared to the central government finance.

The country continues to reel in the ongoing pandemic, and the second wave has delivered another economic blow by disrupting production in both rural and urban sectors. The unemployment rate has climbed from 7.9 percent in April 2021 to 11.9 percent in May when the second wave resulted in stringent lockdowns across states, according to CMIE estimates.

Due to broken mechanism of acquiring credible data during pandemic, the real extent of damage is yet to be estimated. However, there is little disagreement that the Micro, Small and Medium Enterprises (MSMEs) bore the biggest losses of the ensuing disruptions. This has serious repercussions on employment as MSMEs provide livelihood to a large section of the population. A third wave spread of COVID-19 has the potential to fatally damage the MSMEs, and then the sector may not recover fully before 2023.

In this scenario, continuing with new credit and loan guarantee schemes makes no economic sense”. The economy needs direct fiscal intervention, and any resultant deficit can be financed in various ways. That is what the road to recovery needs in the short run.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Abhijit Mukhopadhyay

Abhijit Mukhopadhyay

Abhijit was Senior Fellow with ORFs Economy and Growth Programme. His main areas of research include macroeconomics and public policy with core research areas in ...

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