PM Garib Kalyan Yojana falls short on relief         GS Paper 3

The Covid-19 outbreak and lockdowns imposed by the government to control its spread in India have seriously disrupted livelihoods and businesses. To mitigate the economic difficulties arising of the shock, Finance Minister Nirmala Sitharaman announced on Thursday a ₹1.7-lakh crore package, covering enhanced food quotas under the public distribution system (PDS), higher wages for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) workers and free cooking gas cylinders.

The package, called the PM Garib Kalyan Yojana, also includes cash transfers under the PM-Kisan scheme to farmers, to senior citizens and differently-abled persons, and to women holding Jan Dhan accounts.

The cash and food-grain components will soothe people’s anxieties to an extent, but may be insufficient to mitigate the economic stress in a significant way. The package has fallen short of expectations. The PM-Kisan cash transfers of ₹2,000 each to 8.7 crore farmers is merely a front-loading of the instalments due later in the year. Similarly, the MGNREGA wages were due for upward revision anyway, to account for inflation.

The wage rate revised by ₹20 is to take effect from April 1. It can result in additional transfer of up to ₹2,000 crore annually for MGNREGA workers. But is it fair to expect workers to turn up for manual labour under the MGNREGA in lieu of social distancing? Instead, cash should be transferred to the five crore families holding MGNREGA job cards without requiring them to turn up for work. Perhaps the sums need to be bigger.

An impression is fast gaining ground that the government is dithering on a larger relief package out of concern for its tight revenue position. The Finance Minister must immediately dispel these doubts. A clear message must go out from the government that the revenue position or the fiscal deficit target are not the principal challenge or constraint in combatting the economic consequences of the pandemic.

Finding funds

The fiscal space required for financing relief and support for the vulnerable can be carved out by redrawing the year’s Budget allocations. Many options are available.

The Central government spends more than ₹3.4 lakh crore annually on Centrally-sponsored schemes. These schemes can be halted this year, and the full allocation can be transferred as on-time relief cash transfers to the poor and the vulnerable.

Further, the Seventh Pay Commission reward for government employees was predicated on the assumptions of healthy revenue growth and 7 per cent-plus GDP growth. With revenue and GDP growth falling short of assumptions, the pay and pension hikes for government employees can be clawed back.

In emergencies or war, the fiscal deficit can be allowed to widen and the Reserve Bank of India (RBI) can be asked to monetise it. As the lockdown has depressed demand, there will be no risk of increased inflation. Prices may rise due to supply-side bottlenecks, but those will need administrative solutions. Monetary policy will be ineffective. Of course, it is highly unlikely that the need for monetising the deficit would arise, given the alternatives available to reorganise the fiscal space afforded by the Budget.

Aimed support

If the money can be made available, what should it be spent on? The large segment of migrant informal sector workers, that account for 90 per cent of India’s workforce, received no targeted relief from the package. Stranded in cities, with no means to return to their villages because of the lockdowns, Covid-19 has hurt them the most. Many are left with no option but to walk hundreds of kilometres to make it home.

Few have recourse to the chosen channels of relief, the MGNREGA and PM-Kisan, or the relief package’s component for the 80 lakh organised sector workers earning up to ₹15,000 a month, under which the government will foot the bill for the Employees’ Provident Fund (EPF) contributions of both the employee and the employer sides in small companies. Food-grain disbursements through the PDS is the only relief they will be able to access.

The migrant workers must be provided targeted support. The risk is that they could carry the coronavirus to the villages. Ideally, they should be hosted in clean, well-functioning camps with essential and medical supplies allowing for distancing and isolation, should the need arise, right where they are — along the highways.

Similarly, in the villages, no amount of cash or food grains can make up for the limited availability of health infrastructure such as hospital beds and ventilators. Therefore, simply providing cash and PDS food grains will not suffice in an overall supply-side vacuum in the economy. The lockdown has disrupted availability of essentials. What is needed, therefore, is an urgent administrative solution to make these available in rural India.