Micromanager Modi Gives 58-Point Stimulus Package But No Solution
Modi govt’s stimulus package gave headlines, but failed to address key issues – boosting demand and saving jobs
“Micromanager in chief” this is how the Wall Street Journal described Prime Minister Narendra Modi in a March 2017 article, a few months after he announced the demonetisation of Rs 1,000 and Rs 500 currency notes.
The article described how Modi took this decision almost unilaterally, consulting only a handful of close advisers, keeping much of the government in the dark.
A related allegation that is often made against Prime Minister Narendra Modi is that his policies – like demonetisation and the Goods and Services Tax – end up increasing bureaucratic control and interference, going against his own principle of “minimum government, maximum governance.”
This trend appears to have continued well into the first year of Modi’s second term in office. And his “stimulus package” to deal with the aftermath of the COVID-19 crisis is a case in point.
In the five tranches or sets of announcements, one could count as many as 58 different measures.
These measures range from an immediate measure like free food grain supply to migrants to something as unrelated as “opening up future exploration in inter-planetary travel to private players”.
For Union Finance Minister Nirmala Sitharaman, it was almost like a second Union Budget. Perhaps more than that – if the Budget is a three-hour movie without an interval, the COVID-19 stimulus package was more like a web series spread across several episodes.
So the question is: Did the micromanager-in-chief miss the woods for the trees?
Many would think so.
Package Ignores Core Issue – Demand
The stimulus package gave a lot of headlines focusing on ‘Rs 20 lakh crore’, ‘10 percent of the GDP’, or ‘Atmanirbhar Bharat’.
But several firms pointed out that the Modi government’s package fails to address the core issue – boosting demand.
Nomura India said that the “government will need to step in again in the coming quarters for reviving growth through demand stimulus.” Goldman Sachs predicted that the package may not have any effect on immediate growth revival. And Morgan Stanley said that the package will have a low fiscal multiplier effect.
According to Emkay Global, “10 percent of GDP package is worth grabbing headlines. However, it is not clear how many of the measures are related to the ongoing pandemic”.
Another securities research firm Sanford Bernstein termed the package “a lost opportunity” and a set of “generic announcements”.
Not surprisingly, markets responded negatively to the package with the BSE Sensex falling by 1,068.75 points on Monday 18 May.
This goes against the trend in Asian and European markets and this is largely due to a disappointing stimulus package.
Analysts say that this is because the package focuses mainly on providing credit and doesn’t boost consumption.
An industry as crucial as the automobile sector is complaining that it has been “left out” despite suffering a massive loss of jobs.
So despite laying out a massive 58-point exercise, the Modi government’s package is failing to create the impact that was required.
What Should Govt Have Done?
Rather than an elaborate plan, the government need a few big ticket measures aimed at boosting consumption and addressing the immediate needs of the most vulnerable sections.
The fundamental need was income support, which the government left largely unaddressed.
In contrast to India, Canada, which has already begun rolling out its stimulus package, has doubled direct spending on the crisis to $52 billion
Anyone who has lost income due to the COVID-19 pandemic is qualified for aid of up to $2,000 a month for up to four months.
Even in terms of some of the welfare measures, the government of India could have done things differently.
Instead of a number of complicated measures that will involve a great deal of bureaucratic hassle in just identifying beneficiaries, a few simple measures may have had a wider impact.
For instance, a very large chunk of India’s poorest people has already been identified and covered under the Jan Dhan scheme. The government could easily have transferred a sizeable income support to all Jan Dhan account holders.
Instead what the government is giving is just Rs 500 per month for three months, that too just to female account holders.
Rs 500 per month is hardly going to be of any benefit to families who have lost jobs or sources of livelihood.
Similarly, the main step to address starvation is 5 kg or rice and 1 kg of chana per person per month for the next two months for migrants not having Food Security Act cards. And that too through the state government. This is hardly sufficient and doesn’t include essentials like salt, vegetable oil, milk, or sugar.
In addition to this, the government could very easily have gone for distribution of free foodgrains using the already existing PDS database.
The rationale behind a large number of thinly spread out measures, instead of fewer, more concrete measures, appears to be political.
It helps the government maintain the support of a larger number of people, without doing anything substantial.
There is, however, a dichotomy here. For someone who micromanages policies, Modi doesn’t get into the details in his public addresses.
All the PM’s speeches on the COVID-19 lockdown have mainly focused on the broader narrative of “India’s success being recognised worldwide” or the need for “sacrifices” to be made by the people.
It seldom gets into concrete promises, which are then left to ministers like Nirmala Sitharaman. This insulates Modi from any possible policy failures, despite the fact that the policies bear his clear imprint.
Therefore given this style of leadership, big ticket measures may not be easy to come by.
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