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Breaking Down the Government's Rs 20Lcr Atma Nirbhar COVID-19 Economic Package

Editor, TRANSFIN.
May 19, 2020 3:16 AM 4 min read
Editorial

The Government’s ₹20Lcr (specifically, ₹20.97Lcr or $279.9bn) economic package has finally been revealed in full. The “Atma Nirbhar Bharat Package”, which was conceived to help consumers and businesses endure the impact of the COVID-19 lockdowns, amounts to more than 10% of GDP, the Finance Ministry has said. 

But as the age-old saying goes, the devil’s in the details.

Let’s have a look at the numbers, shall we?

 

The Package Includes RBI Measures

Firstly, it’s important to note that the ₹20Lcr figure includes previous measures announced by both the Government as well as the RBI.

In fact, let’s divide the package into eight parts: RBI interventions + Government’s earlier measures (Stimulus 1.0) + announcements by FM Nirmala Sitharaman in past few days during her five press conferences (Stimulus 2.0 - Part 1, 2, 3, 4, 5) + Ad Hoc steps taken. So, eight parts.

 

Breaking Down the Government's ₹20Lcr Atma Nirbhar COVID-19 Economic Package

 

Now the biggest tranche comprises the steps taken by the Central Bank, which amount to ₹8Lcr ($107.2bn) on their own.

These steps include mostly bank liquidity measures such as purchase of government bonds via OMOs, Targeted Long-Term Repo Operations (TLTRO 1.0 and 2.0), tweaking the cash reserve ratio etc. Etc. Thankfully it doesn’t include repo rate and reverse repo rate cuts (countering prior speculation by impatient Twitterati)..

 

Now, the Government’s Contributions to the Atma Nirbhar Bharat Package

If you take out RBI’s ₹8Lcr, there’s ₹12Lcr ($160.7bn) left. Of this, about ₹1.7Lcr ($22.76bn) of fiscal stimulus was announced on March 27th itself (Stimulus 1.0 in the above table). This involved relief for vulnerable sections of society under the Pradhan Mantri Garib Kalyan Package (PMGKP).

Then, on May 12th the Prime Minister in a televised address to the nation spoke about the ₹20Lcr Atma Nirbhar Bharat Package for the first time. In the days that followed, the Finance Minister revealed the remaining aspects of the package in five tranches.

 

A Game of Numbers: Two Ways of Looking at the Atma Nirbhar Bharat Package

Now, much is being written on how little the Government’s package includes actual fiscal spending. The cash outgo, domestic and international analysts agree, is much less than 10% of GDP. On average, the figure for fiscal outlay is expected to be closer to 1% of GDP.

But for now, let’s take the ₹20.97Lcr figure as it is and work with it. Perhaps not as a measure of fiscal aid but as a measure of Government support.

Analysing the categories of Government (and RBI) support, we find that most of the Atma Nirbhar Bharat Package involves liquidity and credit support as tallied below:

 

Breaking Down the Government's ₹20Lcr Atma Nirbhar COVID-19 Economic Package

 

Now let’s look at the package via another lens: who is being benefited (or at least targeted to benefit) from the various measures announced? 

When we break down these, we find that most liquidity is going to Scheduled Commercial Banks (SCBs) a.k.a. The big banks, with a hope that money would eventually “trickle” down - a much tougher sell than it sounds especially when the economy has virtually zero...what’s that thing called...demand! The next big beneficiary is the MSME sector, albeit primarily through Government-guaranteed credit. This number is again subject to much scrutiny as only 4.5m of 630m MSMEs are covered under this scheme, by the Government’s own estimates (more on why MSMEs usually miss the boat, go here). Farmers, Economically Weaker Sections (EWS) and agricultural infrastructure follow in the top five. Here’s the breakdown:

 

Breaking Down the Government's ₹20Lcr Atma Nirbhar COVID-19 Economic Package

 

While more spending by the Government may be announced in the near future, markets for now are evidently unimpressed by the package, possibly let down by the relatively low fiscal outgo. 

Sensex and Nifty both nosedived by more than 3.4% on Monday, the first day after the revelation of the entire Atma Nirbhar Bharat Package and the further extension of the nationwide lockdown, even as the number of coronavirus cases in India continues to rise.

FIN.

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