Coronavirus relief for the economy: What the Centre can and should do

COVID-19: SUGGESTIONS FOR ECONOMIC REVIVAL

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There has been a strange silence, both before and after the Janata curfew. Even as the rest of the world announces massive economic relief packages to tackle the Corona spread and help those whose livelihoods have been badly hit by the virus, the Narendra Modi government has said and done little on this so far. Trade unions and other groups have sent numerous recommendations to the Centre on steps that can be taken in the short term But even the economic task force, which the PM had announced during his address to the nation, has so far not yet been formed with the finance ministry passing the buck on this to the PMO.


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States are left, for now, to fend for themselves with funds they can raise on their own. But GST has severely curtailed states’ ability to raise money from additional local taxation on goods and services. Kerala and West Bengal are the only states so far to have announced some relief measures.

In every city, concern is particularly high on the plight of daily wage and other informal economy workers like domestic help whose income has suddenly dried up. With all the metros in total lockdown, the plight of these workers is being highlighted by various groups. But there has not been a peep from the Centre so far on how they plan to face the economic fallout of the virus outbreak.

Citizen Matters spoke to two experts on the immediate short term steps the government can take. P Sivaram, a finance professional and former CFO and Vice President at Punjab Tractors till he launched a partnership firm that specialises in investing in growth and turnaround situations. And Devinder Sharma, agricultural economist and food policy analyst. These are their recommendations:

P Sivaram:

  • First, treat this corona virus as a national emergency and apply the Defense of India rules. These rules enable the government to declare an emergency situation, under with fundamental rights are suspended and all other activity regulated.
  • Prepare for a disaster model for at least the first quarter of the coming financial year. Like the National Disaster Management Authority, this model  lays down the policies, plans and guidelines for disaster management and works to ensure timely and effective response to disaster, in coordination with similar bodies at the states, and allocates needed funds.  Let’s say in our case, the most affected 60-75 locations may need different, stringent treatment.
  • Import medical goods as needed regardless of costs
  • Fine all PAN CARD holders for socialising despite orders
  • Start a National Defence Fund like was done in 1962 and 1965 wars with Pakistan
  • Differentiate between rural and urban. Rural banks , for example, are difficult to acess and ATMs are minimal. So rural areas could have a mix of goods–say food, other supplies–  and cash transfer, on a 2 month basis whereas urban it could be all cash transfer.  
  • Transfer cash and goods to the unorganized workers and rural poor, for about 2-3 months in one go
  • Insist on wage payments by MSMEs while deferring their payments of loans, statutory dues by a quarter through a special dispensation from the banks via RBI
  • Need-based partnership between states and the Centre on health care and delivery of economic relief. Like percentage of share of cost estimates can be agreed. Not to be left at babu levels but at CM level.
  • Rope in a lead NGO in a state  as the 3rd leg of this PPP.
  • Govt could even consider special incentives  to all essential service workers, using donations from people and using state relief funds.
  • Get quick advice from behavioural economists in India and take inputs from people like Dr Manmohan Singh
  • All this will increase fiscal deficit, but this about saving the country right now. So unmindful of deficit numbers, the government will have to resort to massive infrastructure development across the country soon after monsoons tocreate assets, johs and kick-start consumption. Otherwise social unrest  and related costs can escalate. Inevitably, given the existing economic slowdown, the first quarter of the next fiscal year will see a recession. The infrastructure investment will help the economy to limp back up in the subsequent quarters.

Devinder Sharma calls this an existential crisis. His recommendations:

  • India is lucky to have the huge food stocks  which will ensure every Indian gets food.
  • Since the government has all the data it needs—by way of Jandhan account numbers, Aadhaar data and technology at its command, Government must without delay make cash transfer of Rs 3000 into all the Jandhan accounts, and  bank accounts of the farmers, daily wagers in the unorganized sector and migrant workers
  • Triple the PM Kisan benefit from Rs 6000 a year to Rs 18000 a year, giving a monthly benefit of Rs1500
  • Transfer cash to all the MNREGA workers who cannot work in the circumstances
  • Defer or reverse  the Finance Minister’s September 2019 proposals including slashing of corporate tax and use the funds – Rs 1.45 lakh crores –to pay those who are losing wages in the current scenario
  • Transfer free rations to all the migrant labour, unorganized daily wagers and poor, for a month or two at a time
  • Accept that the assiduously built up food procurement system should not be tinkered with or discontinued, given the current experience
  • Review its disinvestment ideas given how useful Air India has been

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2 Comments

  1. An interesting article on an important topic. I read the article twice since I got confused after reading the article as you can see. I would appreciate if my doubts can be cleared. I am interested in the topic to understand how did AAP actually keep the promise of halving the power tariff while maintaining the fiscal balance. It almost sounds like we can have free lunch which cannot be true.

    “AAP had promised to halve the electricity bill. Mrs Bhalla’s bill was zero in Nov and Dec 2019. Malini who was paying Rs 6000 per month started to get a subsidy of Rs. 761 since August, 2019. Dinesh Kumar was getting zero bill for the last five to six months. Krtika Singh in Tilak Nagar has also been getting zero bills since August, 2019. AAP claims that it has reduced electricity bills by 50%.

    Article states at one place that subsidy announced was 20% up to 200 units, 35% from 201 to 400 units and zero after that.”

    I am giving the above quotes for my confusion.

    While the article giving the examples of Bhalla, Malini and Kumar creates an impression Delhi residents are getting “free electricity” since few months. Of course this is not true though the author ends up creating that impression at least in my case. Later the author after giving the new fixed charges shows how DERC reduced the fixed charges. There is no explanation as to how DERC reduced it. Since it is easy to reduce fixed charges by transferring to actual use through tariff increase, it would have been useful had the author explained why and how this happened. Did the government asked to reduce these fixed charges? After all some one has to pay it – either consumers through higher tariff or the government through higher subsidies or the generating/transmission companies by improving the efficiency or through reducing its rate of return.

    Having created the impression that AAP has met the promise of halving the electricity bill, it ends by showing how actual bill has reduced only by 18.56% for consumers with 2KW load, and by 28.43% for consumers with 5 KW. What happened to the implied claim of 50% savings?

    I agree that AAP has certainly reduced power bill by doling out subsidy. But as we all know there is no free lunch in this world. What impact this had on the budget? On the other hand if we find out that AAP managed to reduce power bill without having a “significant” impact on the budget (you told me that they even had a surplus) then one needs to appreciate it.

    Look forward to getting some explanation.

    regards
    Bhamy

  2. The AAP manifesto indeed said they would halve the electricity bills. People did not believe they would be able to implement the subsidy. Today it is not half for all, it is free for some and a saving of about Rs800 for those who consume less than 400 units, and absolutely no subsidy for those who consume more than 400 units.

    When they assumed office in 2013, they spelt out the subsidies– 20% up to 200 units, 35% from 201 to 400 units and zero after that. It would have reduced the bills to half for some, not all power consumers, but the government was gone in 49 days. When Arvind Kejriwal returned to power in 2015, it continued that way, and so there was no buzz about the power subsidy.

    That is when, in Aug 2019—a few months before the assembly elections of Feb 2020 –, the Delhi government tweaked the scheme, announcing a 100 per cent subsidy for those who consume up to 200 units for power a month, and Rs 800 off their bills for those consuming between 201 to 400 units. It is since then that the bills came to zero for those who consumed less than 200 units, and others got a subsidy of 800 rupees. It helped that October, November weather in the capital is very pleasant: you don’t need ACs or heaters, so many people saved Rs800 a month. Those who ran up over 400 units got no subsidy.

    The DERC is mandated to fix the tariff –fixed load charges as well as power tariff for consumers, so it did, not from their pockets or reducing the price they pay. The gap on account of the subsidy was bridged by the Delhi government through budgetary allocations.

    The Delhi government has paid for the power subsidy without impacting their budget adversely, and they say, it is their prudence –no frivolous expenses on themselves, Now, the Congress has said they will give free electricity upto 300 units, and the BJP has said they will continue to the AAP subsidies on power if elected!

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