Old Wines, New Bottles

Tuesday, 02 June 2020

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Old Wines, New Bottles

Swapnil Bharali | May 16, 2020 11:16 hrs


Prime Minister Narendra Modi’s last longish address to the nation was about the announcement of a Rs 20,00,000 crore relief package to revitalize the economy even as the Covid-19 pandemic continues to maul us. The finance ministry headed by Nirmala Sitharaman has since gone on overdrive with three continuous days of press conferences doling out financial schemes that are, according to them, expected to be the right kind of incentives for revival.


For the moment, most of the newly publicized schemes seem to be old wine in a new bottle. For one example, the FM announced a package for the housing sector. The government will be extending the Credit Linked Subsidy Scheme (CLSS) for middle income group (with annual income of Rs 6-18 lakhs). This was in fact operationalised from May 2017 and had already been extended up to 31st March 2020 thereby supposedly benefitting 3.3 lakh middle income families. This scheme will now be extended to 31st March 2021 and 2.5 lakh more middle income families will be supposedly benefitted during 2020-21. Moreover, the FM expects this will lead to investment of Rs 70,000 crores in the housing sector which will also create jobs and stimulate demand for steel, cement, transport and other construction materials. 


Again, the big rental scheme was already in the works with nothing special to it regarding Covid-19.


Moreover, loans can never be part of a stimulus package. Banks usually do not have much choice when it comes to ensuring that MSMEs survive and don't turn sick and granting additional loans is often the only way out. So, taking an additional loan to repay an existing loan is hardly stimulating in real terms. For the record, the finance minister has earmarked Rs. 3 lakh crores in fresh credit as a stimulus package. But there is a catch here and that comes from Sitharaman’s cabinet colleague, Nitin Gadkari, the union minister for road transport & highways who happened to tweet that the Centre and states together owe the MSMEs something to the tune of Rs. 5 lakh crores. Had Sitharaman found ways and means to pay that off, it would have been construed as true stimulus.


All things considered, it remains to be seen whether the schemes will indeed serve their purpose at the end of the day. We just hope the government knows what it is doing.

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