The 20 lakh crore package seems to be caught between two stools, demand and supply concerns. Yet, the Atmanirbhar Bharat package incline towards supply concerns.
Positive Sides of the Atmanirbhar Bharat Package
Agricultural Sector benefits as there are amendments to Essential Commodities Act and a proposal of Central Law. Rs. 1 Lakh Crore investment supports agriculture marketing in the scheme.
An increase in Foreign Direct Investment limits for defense, commercialization in mining sector and promoting privatization in public sectors will optimize resources and impact on India’s competitiveness.
Impact on Financial Sector
During this time of COVID-19 pandemic, the banking sector works to:
- Provide bailouts to people to support their business
- Extend credit facilities with the help of financial sectors
The Atmanirbhar Package focuses on infusing liquidity with an investment of Rs. 7.7 lakh crore. Since, the RBI has ensured adequacy of capital for banks and NBFCs, there is a threat of re-capitalization of public sector banks.
The moratorium benefits given by the RBI and guarantees by the government provides relief to the people. But, the long time risk involved as NPAs are mounting will be difficult to ignore.
Where does Atmanirbhar Package Fail?
Although the 20 lakh crore package talked about Rs. 15,000 crore investment for health affairs yet India’s contribution to the health sector is minuscule as compared to contributions of other developing countries. The Atmanirbhar Bharat Package does not support consumption or manufacturing units.
A large amount of stress lay on supply side concerns as there are supply side disruptions. But, the demand side concerns seem to be subservient in the package. Investment in MGNREGS of Rs. 40,000 crore is one demand side concern taken care of. The measures taken by the government of India through the Atmanirbhar Package focuses on medium term benefits and not immediate actions.
Service industries are not targeted though they make a sound contribution in the GDP of India. The businesses involving aviation, restaurants, tourism and entertainment will continue to suffer.
A worrying situation prevails for the retail and trade as on the upliftment of lockdown, they will have to pay loans, salaries, taxes and other financial obligations.
Automobile, telecom industries and start-ups are facing difficulties due to change in consumption behaviour are not relieved.
What is more Important during Covid-19
For the revival of the economy, the dire need at the time of the COVID-19 pandemic is the purchasing power in the hands of the people. The manufacture and consumption support needs to be provided to boost effective demand.
Lot of employees have been slashed from their jobs because of lesser economic activities. There is a need of creating employment opportunities and income support to educated new comers or youth.
Why is the Atmanirbhar Package criticized?
In the present scenario, most of the observers estimate that the growth of the economy will be less than 2019-20. India has observed nationwide lockdown in March, April and May. So, the income earned by the primary, secondary and tertiary sector has fallen down. Under such circumstances, people will dwindle their optional expenditures and hence, the demand will fall. Besides, people will postpone their investments. Government revenues will get affected and for the government to maintain fiscal deficit (Total Revenue – Total Expenditure), it will have to curtail its expenditure. The net exports will also see a downfall in global demands due to the global crisis.
The components of GDP, household expenditure, business investment, government expenditure and net exports are affected. Out of all these components, government is a major power because it can spend money even when it doesn’t have it. Unlike private finance, government first creates an expenditure outlay and hence adjust its monetary budget.
The government is not raising its total expenditure. Most economists suggest that the 10% GDP contribution will be disappointing as the actual government expenditure in the 20 lakh package is 1% of the GDP. Since, it is contributing less through the 20 lakh package, the same is being criticized.
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