Go big on it: Relief package will help the vulnerable but is too limited to revive the economy

Finance minister Nirmala Sitharaman announced a Rs 1.70 lakh crore relief package named Pradhan Mantri Garib Kalyan Yojana yesterday, to mitigate the hardship caused by the 21-day lockdown imposed by the government. The package uses existing government welfare channels to get relief in cash and kind across to more than half the country’s population. The highlights are that the package is designed to be broad-based and the bulk of the beneficiaries will be the urban poor and vulnerable rural families who supplement household income through short-term unskilled work in urban centres. Another key feature is the package’s benefits are of limited duration.

The Covid-19 outbreak is an unprecedented shock to the economy and the damage has been exacerbated by the speed with which large parts of the world have shut down activities. The informal segment is the worst hit in this scenario. They also lack the cushion to cope with a lockdown. Softening the blow to them must take priority and the government has done well to prioritise. Government granaries are overflowing with cereals currently. The decision to increase the disbursal of both cereal and pulses at no additional cost for three months is expected to cover around 800 million people.

Separately, the direct benefits transfer programmes through banking channels are being utilised to put extra cash in the hands of people or advance transfer payments. This should help vulnerable sections trying to cope with a loss of earnings. Most of the measures have a shelf life of three months. The key question is: Are these measures enough? No, because the scale of the economic shock is extraordinary. Even well run businesses are being swept away by the measures needed to cope with the pandemic.

This means the government cannot afford to delay a more comprehensive response to the shock. To illustrate, the US which was experiencing a record period of economic expansion has unveiled a humongous $2 trillion stimulus package complemented by the central bank’s measures to revive the economy. The longer the government delays a bigger response, the greater are the chances that even sound businesses will go belly up. Therefore, the Narendra Modi government must now ready an economic package, in conjunction with RBI, to use all means available to help the economy bounce back quickly. Such a package is essential to prevent large scale job losses. Time is of the essence.