“Atmanirbhar” model’s first tranche needed higher fiscal stimulus: Ex-finance secretary Subhash Garg

16 May 2020
Courtesy Subhash Garg
Courtesy Subhash Garg

On 13 May, Finance Minister Nirmala Sitharaman unveiled a package of 15 measures aimed at supporting an economy battered by the COVID-19 pandemic. These formed a part of the larger stimulus package—the government claims it is worth Rs 20 lakh crore—that Prime Minister Narendra Modi had announced a day earlier. 

Six measures were directed at shoring up the Micro, Small and Medium Enterprises. The highlight among these was a package of Rs 3 lakh crore for MSMEs and businesses that extended an emergency credit line of up to 20 percent over their outstanding credit. This amount would be disbursed via banks and non-banking finance companies. According to another measure, the government will provide a partial credit-guarantee worth Rs 20,000 crore to banks to lend to stressed MSMEs. A third measure is meant to infuse equity—invest in stocks—in MSMEs through a “fund of funds,” a series of interlinked funds. This would have a corpus of Rs 10,000 crore and a promise to leverage Rs 50,000 crore. The details of the FOF were unclear in the announcement. The government also announced that it would launch a Rs 30,000-crore special liquidity scheme for NBFCs, housing finance institutions and microfinance institutions. The measures announced on 13 May will provide a greater credit stimulus to the economy than a fiscal stimulus—increase lending capacity as opposed to the government injecting more money into the economy—according to Subhash Garg, a former finance secretary.

Garg advocated for a greater fiscal stimulus to revive the economy. Garg was appointed the secretary of economic affairs in June 2017 and designated as the finance secretary in March last year. Within five months, he was transferred to the power ministry—this came soon after the ministry of finance floated an idea that the government should raise funds in overseas markets via foreign-currency sovereign bonds. News reports indicated that the Rashtriya Swayamsevak Sangh’s economic wing, the Swadesh Jagran Manch—which staunchly opposed the bonds—played a role in Garg’s transfer. He left the Indian Administrative Services on 31 October by opting for voluntary retirement. 

Garg, now an economic policy analyst, spoke to Tushar Dhara, a reporting fellow at The Caravan, about the measures that Sitharaman announced on 13 May. While the measures seemed to be worth around Rs 6 lakh crores, he estimated the government’s actual cash outflow will be less than Rs 25,000 crore. 

Tushar Dhara: How would you categorise the various measures unveiled by the finance minister on 13 May?
Subhash Garg: The measures unveiled are of two categories. She listed the earlier ones that the Reserve Bank of India did, which totals [around] seven lakh crore rupees. I am assuming it’s a part of the Rs 20 lakh crore. The second part listed measures totalling around six lakh crore rupees.

TD: What are the characteristics of the second part?
SG: There are some very prominent characteristics of this package. The first is that the package aims to provide working capital [cash for day-to-day operations and overheads like rent and wages] support for MSME—through the Rs 3 lakh crore loans and a partial credit guarantee—[and provisions for] power generators and taxpayers. 

The second dominant characteristic is that it is almost entirely delivered through the credit mechanism. This is not fiscal support. So, it is through the banks that you deliver Rs 3 lakh crore, Rs 90,000 crore payments for [the public-sector undertakings] Power Finance Corporation, Rural Electrification Corporation, et cetera. [On 13 May, the government also announced a Rs 90,000 crore liquidity-injection plan for power distribution companies.]

Tushar Dhara is a reporting fellow with The Caravan. He has previously worked with Bloomberg News, Indian Express and Firstpost and as a mazdoor with the Mazdoor Kisan Shakti Sangathan in Rajasthan.

Keywords: COVID-19 economy
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