FM's economic vaccine: Final tranche is high on reforms, low on stimulus

State borrowing limit raised to 5%, but conditions apply

The government on Sunday provided little immediate relief except increasing allocation to its flagship rural job scheme by 66 per cent, but used the pandemic to usher in bold public sector reforms in its last leg of its announcements on the Rs 20-trillion package.

State-owned units will remain only in strategic areas, which, however, are yet to be defined, while those in other areas will be privatised, according to public sector enterprise policy, which the government will detail later.

Union Finance Minister (FM) Nirmala Sitharaman also gave leeway to states in terms of market borrowing, but much of it is conditional on reforms, such as the one-nation-one-ration card. 

This, if fully tapped, will release Rs 4.28 trillion for states, but will widen the fiscal deficit to 5 per cent of state gross domestic product for each. 

This, together with the Centre’s additional borrowing of Rs 4.20 trillion, will take the combined fiscal deficit of the country to well over 10 per cent of gross domestic product.

Most of the reforms announced in the areas of insolvency and the Companies Act have been re-packaged with some additions. But some of these additions will have ramifications, such as extending the suspension of the Insolvency and Bankruptcy Code to one year, against six months announced earlier, and the insolvency framework for micro, small and medium enterprises. 

The government will increase its outlay for the health sector to improve infrastructure in blocks, but the FM did not specify by how much.

 

 

She said the government would expand the digital platforms for imparting education to school students and come up with Manodarpan, an initiative to improve the mental horizons of students, teachers, and their families.

The boldest of the reforms were in the public sector, but the FM pitched them by saying all sectors would be open to the private sector.

 

 

Even now all the sectors, except atomic energy and railway operations other than construction, operation, and maintenance in select areas, are open to the private sector, according to the site of the Department for Promotion of Industry and Internal Trade.

Even here, the Budget for 2020-21 had announced allowing public-private partnership in Railways.

Sitharaman said the strategic sectors where the public sector would be present would be notified. In these, at least one enterprise will be a public sector company, but the private sector will be allowed. PSUs will be privatised in all other sectors, she said. Partha Chatterjee, professor and head of economics, Shiv Nadar University, said: “These will not have much impact in dealing with the crisis right now.”

 

 

According to the SCOPE site, there were 70 loss-making central PSUs and 178 profit-making units in 2018-19. The government’s flagship scheme — the Mahatma Gandhi National Rural Employment Guarantee Act — will get Rs 40,000 crore more than the Budget allocation of Rs 61,000 crore because demand for work in rural areas has increased due to migrant workers returning to villages.

Sitharaman said this would help generate nearly 3 billion persondays in total. A total of 2.64 billion persondays were generated in 2019-20 under the scheme.

However, comparison should be made with the Rs 71,000 crore spent on the scheme in 2019-20, experts said. So, the increase is 42 per cent and not 66 per cent.