Will 20 lakh crore economic relief package stimulate the dying demand ?? The big hyped economic relief package has been announced. The minute details of the package was further given by finance minister Nirmala Sitharman in a series of Press conference. The whole world including India is held captive due to Corona Outbreak, which has stopped all kind of economic activities across the country. As the Economy of India is in complete disarray, the country was looking at its Supreme leader to come up with some big economic relief package which could bring some sense of security to already ailing economy.
He delivered as expected and made a humongous announcement of 20 lakh crore economic relief package in the wake of COVID-19. The amount is very big and accounts for almost 10 pecent of India’s GDP, but what is the reality of the package ?? We will break it down for you. As soon as the package was announced, Goldman Sachs, one of the world’s biggest investment bank predicted that in the first quarter Economy may contract upto 45 percent and credit agencies like Moody’s has also downgraded the ratings. Some of them has even predicted a zero percent growth rate.
Understanding the Current Scenario:
What does zero percent growth rate means to a country having 35-36 crore poor and 15-16 crore migrant workers??The basic funda of an economy is based on the concept of Demand and Supply . If we go back to pre covid days we find that the demand in automobile sector was slowing down terribly since September 2018 and till the entry of Covid crisis growth rate of auto sector was already in negative.
Demands in sectors like Real estate, consumer products, cement, steel etc. was also crumbling but after the imposition of Lockdown these sectors totally collapsed. The data on employment is very discouraging, the disparity between unemployment and earnings is highest after independence. According to CMIE ( Centre for Monitoring Indian Economy ), the general unemployment rate which used to lie between 6-7% has gone up to a record high of 26-27% after COVID 19.
The total employed people in India is around 45-46 crore but at the present rate of unemployment almost 11-12 crore people are likely to lose their jobs. ILO (International Labour Organization ) has predicted that around 40 crore people will come back to below poverty line after Covid crisis.The top 500 companies listed in Stock exchange have either gone for salary cut or job cut and new jobs has been freezed.
We have to understand that India is among those few economies which is primarily run by its people and helped by the government. The people of India accounts for 60-65% of the economic activities (which means private consumption and expenditure) of the country while the government’s contribution is only 18-20%. So mere infusion of money in the market that too in the form of loans and debts is not going to revive our economy. It was highly publicized that India is spending around 10% of its GDP but it is not factually correct. The government’s real spending is only 1.3% of GDP and the rest is in the form of loans and debts.
What should have been done :
The only way to revive the economy is by creating Demand and demand is possible only when the buyer is assured of his income or have job security. The government must have availed the money directly to the people not to the companies.
What should Government have done ??
Paycheck Protection Scheme could have helped the government in this crisis. Now what is this Paycheck Protection Scheme ?? In this scheme the government gives loans to the companies on a condition that they will not cut the job during crisis time (like COVID or recession) and pay them as before to ensure the job security.
So when recession or pandemic like Covid ends, the customer goes to the market and start buying as before and the demand remains the same and economy flourish. The company have to pay only the interest and not the principal amount and it is known as forgivable loan. This scheme is very popular in America and Europe that’s why they recover easily from recession. They call it V shaped recovery. USA has launched a 349 billion dollars Paycheck protection scheme to fight the after effects of corona.
This Paycheck Protection Scheme is not alien in India, in 2016, Jharkhand Government had experimented a kind of similar scheme in which “ any new company (especially textiles) comes to Jharkhand, then the state government will pay 40% of the employees salary to ensure job security, which proved to be very successful”. One may question that this scheme is all about those who are employed in organised sector. What about unorganized sector ??
So let me explain it to you :- In India on one organised sector employee, 4-5 employees of unorganized sector are dependent (which may include their driver, maid, vegetable seller of that area and many more), so when a person from organised sector have job security, it gives sense of security of others dependent on him. There are around 4.5 crore employees as per Provident fund data in organised sector. If govt could have given job security to those 4.5 crore people then jobs of many dependent on them could have been saved
For the unorganized sector, govt could have launched universal basic income scheme or some direct budgetary provision. If jobs of the people employed in organised sector are saved then demand in the market will remain maintained, which can bring back Economy on track. But if this scheme is so simple then why don’t companies offer to save jobs of their employees.
Here is the catch, the companies in collusion with the government demand for bailout package, tax evasion, loan relaxation and never demand for something like Paycheck protection scheme and in return political parties get donations for their election campaign. This nexus is ruining our economy along with the employees working in it. In this economic relief package govt has done all the things to please the companies but not it’s customer.
Be a watchful citizen and connect the dots…