Relief Package To Address Pandemic

27 March 2020

In light of the Corona virus pandemic led economic disruptions, the Government earlier today announced a Rs.1.7 lakh crores relief package under the ‘Gareeb Kalyan Scheme’ which is to come into effect immediately (likely from 1 April’20). This is the second package announced in as many days. The first package mainly provided extensions in mandatory compliance and did not entail any expenditure outgo. The relief package announced today is targeted at the most vulnerable sections of the society and chiefly comprises of direct cash transfers limited to certain segments, welfare measures and measures to ensure food security to the poor in urban and rural areas including migrants workers for a period of 3 months.

Key measures announced include:-

1. Hike in MNREGA wages by Rs.20 from Rs.182 to Rs.202. This hike in the absence of economic activity may not have the desired effect in terms of increasing income levels.

2. Provide free food items to 80 crore people – additional 5 kg of rice and wheat per person per month for three months and 1 kg of pulses per month to each household for the next 3 months. While the former can be accommodated from the buffer stock held by the FCI pulses would require a fresh stream of procurement as this system does not presently exist.

3. Front loading PM Kisan Yojana scheme and provide the first installment immediately of Rs 2000. Under the scheme farmers are to receive Rs.6,000 during the course of the year. As this is already budgeted for, there may not be any additional expenditure incurred on this account.

4. Medical insurance cover of Rs 50 lakh per healthcare worker.

5. Poor senior citizens and widows to be provided cash of Rs.1000 for the next 3 months.

6. Self help groups collateral free loans limit increase to Rs.20 lakhs from Rs.10 lakhs earlier

7. 20 crore woman Jan Dhan account holders to be given ex-gratia amount of Rs. 500 rupees per month for the next 3 months to For a period of 3 months the government is to make contributions to EPF (both employee and employer contribution) on behalf of establishments that have less than 100 employees, where 90% of employees drawing less than Rs 15,000 salary.

8. Employee can withdraw upto 75% of their non-refundable advance or 3 month wages which every is lower.

9. Provide free gas cylinders to families living below poverty line for next 3 months.

10. For construction workers – the state governments are to use the welfare fund for building and construction labourers

11. The District Mineral Fund, worth about Rs 31,000 crore, will be used help those who are facing economic disruption because of the lockdown.Although sectoral relief measures were not announced, the government has not ruled out additional support in coming days. An economic stimulus package for the most affected sectors can be expected in the coming days.

While details on the financing of the package or the fiscal implication have not be provided, assuming that the entire Rs.1.7 lakh crores is additional expenditure that is to be incurred over the budgeted expenditure for FY21 (of Rs. 30.4 lakh crores) and the projected GDP is retained, the fiscal deficit would increase by 0.75% from the budget target of 3.5% to 4.3% of GDP. However, given that GDP growth for the year is expected to decline, the fiscal deficit would widen further.

If this expenditure is to be met through additional market borrowings it would pressure bond market yields and thereby interest rates.