• Mahija Ratnoo

Let’s Count The Zeroes Of The Package

On 12th May 2020 at 20:20 in the clock, in a 20 minute speech Prime Minister declared a “Rs 20 lakh crore special economic package”.

While preaching his gospel of treating the COVID-19 pandemic crisis as an opportunity and outlining his latest rhetoric of an “Aatmanirbhar Bharat”, Prime Minister dropped some big numbers. The measures not only included relief measures for the troubled sectors but also outlined a new vision for emerging India


Rs.20 Lakh Crore = Rs. 20000000000000. Yes, 13 zeroes!

Prime Minister’s VISION :


· Five pillars of Aatmanirbhar Bharat –

  • Economy

  • Infrastructure

  • System

  • Vibrant Democracy

  • Demand

· Special economic and comprehensive package of Rs 20 lakh crores, equivalent to 10% of India’s GDP.

· It is time to become “VOCAL FOR OUR LOCAL PRODUCTS AND MAKE THEM GLOBAL”, with pride!

· Focus on 4L’s – land, labour, liquidity and laws.

PM Narendra Modi sought to turn the unprecedented corona virus crisis into an opportunity of a lifetime for India.


There are two types of policies in India, namely- Fiscal Policy and Monetary Policy.

  • Fiscal Policy : it is formulated by Government of India wherein it does tasks like adjusting expenditures to various schemes, deciding tax rates to name a few.

  • Monetary Policy : it is decided by Reserve Bank of India ( RBI ).This includes steps like deciding interest rates, manage money supply, checks inflation, etc.

RBI “theoretically” is independent of the Government of India.


Finance Minister Nirmala Sitharaman detailed the package in five tranches. The package included liquidity measures already announced by the Reserve Bank of India, loan guarantees and increased spending on some areas such as the rural jobs guarantee program. So this package is a blend of both monetary and fiscal stimulus.


The direct government intervention in the backdrop of COVID-19 to provide relief to various sections of the society, specially to the migrant workers, ranges somewhere from Rs 1 Lakh Crore to Rs 2.7 Lakh Crore; as per the various estimated by agencies world wide.

For example :

Barclays plc (a British multinational investment bank and financial services company) estimated the amount to be Rs. 1.5 Lakh Crore = ~ 0.75% of GDP

CARE rating agency estimated the amount to be Rs. 2.73 Lakh Crore

HSBC Securities estimates the real fiscal impact to be about 1% of India’s GDP against the claimed 10%, with the amount to be Rs.2.13 Lakh Crore.

The actual fiscal package by the government that will reach the public directly, like in the case of MGNREGA allocations, free food grains to migrant workers and viability gap funding of Rs 8000 Crore, to quote a few. These initiatives hold immense potential to benefit the targeted sections of the society, although the ground implementation of the same remains to be seen.


Overall if we see majority components of this big bang package are collateral free loans/loan guarantees, credit facilities; to people, companies, industries but at a lesser interest rate. Although no doubt a certain section of the intended beneficiaries will be benefitted, however the step is not useful in the long run as COVID-19 has left the collarless/migrant workers with no guaranteed income and jobs, coupled with lack of clarity on lockdown period dried up whatever savings these people have had, hence paying back of these loans will be another task for this section.

The expectation was for a Direct Benefit Transfer to people’s bank accounts for immediate benefits, as quoted by Nobel Laureate Mr. Abhijeet Banerjee that an increased supply of money to people would have translated into an increased demand, ultimately helping in reviving the economy.

The sovereign guarantee backed uncollateralised loans to MSMEs will encourage borrowers to default on their payment of loans, which in turn discourages banks from future borrowings.

The key focus was to address the liquidity crunch of MSMEs due to lockdown but the package ignored the structural issues of MSME credit.

The 100% sovereign guaranteed loans (for 4 years) will encourage both banks as well as the borrowers to never pay back, hence becoming defaulters. This will finally make banks less willing to lend money to the MSMEs in the future.

To address the structural issue, per se, it should be a way of functioning of banks to disburse uncollateralized loans to the small businesses even in the future. In addition to it, banks to be encouraged to lend to good borrowers based on their credit history.

In the times when there are limited resources and limited credit available it becomes all the more important to ensure money goes to the firms that are going to use it productively.

Also the package pretends to touch all sections of the society and all sectors of the economy. Conspicuously absent is Modiji’s vibrant demography- the students and the youth of India as while most other sections find a passing reference the burning and core demands of the youth and students are all left utterly untouched. Also the middle class people received almost negligible benefits

The government also propounded a very strange definition of “aatmanirbharta”, wherein many public sectors, even the strategic ones, are inching towards privatisation or are opened up for foreign investments; threatening the very core of self-reliance.

In the short run, the following schemes seem to be most effective –

· rise in MGNREGA outlays-Rs.40,000 crore,

· free food grains for the needy-Rs 3500 crore,

· loan guarantees for MSMEs and NBFCs.

Over the medium term, if implemented well, the following can prove powerful

· passing laws to revitalize agriculture marketing,

· implementing commercial mining policy,

· privatizing public sector enterprises.

Economists are of the view that the government has aimed for maximum bang for minimum bucks, with majority of the relief to be either regulatory in nature or mirroring its contingent liabilities (potential liabilities in future) rather than an explicit budgetary support.

Also they believe the big bang package lacked measures to kick start consumption and manufacturing, which are the urgent drivers to jump start Indian economy. The reforms lacked “spark”.

Despite all the criticisms the fact cannot be denied that the government very smartly focused on the long pending reform measures and used it as a tool to infuse liquidity into the economy. Some sections received benefits, some received less, some are yet to receive relief, but given the uncertainty looming over the end of the pandemic and all the more uncertainty about the restarting of economic activities in full swing, it might be the case that the government is being cautious declaring this big bang package focusing on the utmost areas and at the same time conserving it’s resources to be available for use at the apt time!


· India’s “claimed total stimulus value” in terms of dollars is higher than GDP of about 149 nations like – Vietnam, Greece, New Zealand, Romania.

· The big bang package is almost equal to Pakistan’s annual GDP of $284 billion.

· The package is even 5 times the personal wealth of the richest Indian Mr. Mukesh Ambani.

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