Business Today|May 03, 2020
The central government’s response to the economic fallout of coronavirus has been a mix of a few procedural and compliance relaxations, liquidity injection in the banking sector through the Reserve Bank of India (RBI) and a small package aimed at the poor and underprivileged. In short, it has been tepid and cautious.
With several agencies predicting doom and gloom for the economy — the latest is World Bank forecast of 1.5-2.8 per cent FY21 real GDP growth versus 6 per cent previously — the government’s response to the situation has baffled many. The size of the package for the poor and underprivileged — ₹1.7 lakh crore — is less than 1 per cent of GDP, even when a large number of economists and experts are asking for a package that’s 4-5 per cent of GDP or ₹10 lakh crore. Even a large portion of the ₹ 1.7 lakh crore package has been mostly budgeted for earlier; the government is incurring an incremental cost of only ₹70,000-80,000 crore. And then there are bits and pieces measures such as relaxation in tax and other regulatory compliances and transfer of some pending funds to states, local bodies, etc.
Of course, the RBI has announced a series of measures like a 75 basis points repo rate cut and a 100 basis points cut in CRR, releasing ₹3.74 lakh crore into the system. Besides, it has eased norms for working capital financing and rescheduling of term and working capital loans. The benefits are yet to be seen.
RBI LIQUIDITY PUSH: FAILING THE TEST
When the RBI announced a three-month moratorium on loan repayments, there was hope among individuals and small and medium enterprises (SMEs) that this will ease their pain. Soon, individual borrowers realised that if they opt for the moratorium, they will end up paying additional interest, and might have to pay even the deferred EMIs in one go. Not a deal they were looking for at a time when jobs are at stake and salary cuts are the norm.
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May 03, 2020