The Good And Ugly Of The Government's Economic Package

When Prime Minister Narendra Modi first addressed the nation on March 19, he told us that a task force would be set up to deal with the economic effects of the coronavirus pandemic. It then took the government almost a week to come up with an economic relief package. This was not a positive beginning - the delay was mystifying, given that the expected effects on the Indian economy were easy to predict weeks ago.

What we eventually got is something of a halfway house. It may not do enough, and soon enough, to ameliorate the plight of those most at risk, but it also is better than nothing. One way to look at it - the way the government would prefer we looked at it - is that this is only one segment of an overall strategy, multiple arrows in a single quiver. The first step was when the Finance Minister put some tax payment deadlines on hold; the second was the relief package; and the next arrow was fired by the Reserve Bank of India when it cut interest rates, announced an extension of loan terms, and stepped up its purchase of government and corporate bonds, and promised to keep the wheels of finance moving by ensuring there was enough liquidity to go around.

This is an interesting way to look at it, but it feels like it is an attempt to impose a sort of coherence after the actions have been taken. Every step was more like an expansion of the normal actions of that branch of government, except in abnormal times.

This is both a bad and a good thing. It is good because it takes into account the capacity of the Indian state. If the priority is to keep things moving, and to get resources into the hands of people who need them, then you cannot spend too much time wrangling the Indian state machinery into new ways of transferring money to its people in order to protect them. So Sitharaman's package, for example, used the existing channels of welfare - pensions, ration shops, gas cylinders, NREGA and so on - but tried to increase the amount committed to each. Increase the amount and make the next few payments in advance, and you might have a shot at getting a lot of money into people's hands quickly.

But it is a bad thing as well, because the fact is that there are people hurting now who are not the regular beneficiaries of the Indian state. These are, in particular, the urban poor and rural-urban migrant workers. India's interventions - the public distribution system, pensions, the NREGA, LPG cylinders, loans for women's self-help groups and so on - tend to focus on those people who stay in rural areas and do not move too much. What use is the NREGA in his home district of Bulandshahr to a daily wager stranded in Delhi?

It is also worth noting that the government has continued to be mindful about how much it is spending. Ignore the "Rs 1.7 trillion" headline. In fact, according to the research firm CLSA, there is only about Rs 400-500 billion (well under a third of the total 1.70 trillion package) that the union government itself is actually handing out in terms of cash. The rest will come from state governments or through the rescheduling of already existing entitlements.

The consequence of this, however, is that the urban working class and the migrant to the city - the very people that we will rely on to build this country's future - have been left to their own devices in the middle of this shutdown. And thus, these tragic pictures and videos of people trudging for days back to their homes along highways silent of traffic.

The Reserve Bank of India's package, meanwhile, will give out liquidity of about Rs 3.7 trillion. These are not really comparable numbers. But a similar apparent imbalance in the response in other countries - for example, the US - prompted outrage. India's silence in the face of the helplessness of those left out reflects poorly on us as a country.

Even in this lockdown, it is the Indian upper middle class that will be ferried back to this country from thousands of miles away, and at considerable expense; but the poor labourer will have to walk cross country before he has any hope of help. This sort of inequality is repugnant.

When this is over and done, the fact is that someone will have to pay for this response - and I mean literally pay, since this will be expensive. To restore the government to fiscal health, someone will have to give it more money. And that will have to be the middle class. Forget the tax cut we were all hoping for. The amount of money that will be spent on combatting the virus and dealing with the economic consequences will almost certainly mean higher taxes in the future. And let's be clear: it is the middle class who will have to pay. And I want to hear no complaints - in a time of crisis, we receive so much more from the Indian state than everyone else.

(Mihir Swarup Sharma is a fellow at the Observer Research Foundation.)

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