Stimulus/Revival Package - Tranche 5 - May 17

[zashmaster]

Notes from the FM's press conference

Intro

• Today's is the last tranche
• "The pandemic has given a message to India, and an opportunity"
• So far - DBT done since lockdown - 16.9K cr for Kisan Samman, 2.8K cr for other pensions, 10K cr to women having Jan Dhan accounts, 3,9K cr for construction workers
• Also 8cr or so free gas cylinders, 3K cr advances from EPF
• FCI, NAFED and state govts distributed food grains - PDS and free
• These supposedly addressed the 'life' part; today's part is on livelihood
• Focus today on MNREGA, Health, Education, Business, Companies Act, Ease of doing business, PSE, Resources for state govts
• Would also provide break-up of the total
• About 15K cr spent on health expenses during covid; almost 1 cr each of PPE and N95 masks provided

Announcements

1. MNREGA - Additional 40K crores - can generate 300 cr person days of work
2. Education - Additional digital resources, including additional TV channels
3. Health - additional measures and expenditures
4. IBC - 1 year moratorium for new proceedings; IBC floor raised to 1 cr from 1 lac; separate provision for MSMEs
5. Companies act - Further decriminalization of technical and procedural violations; compoundable offenses can be handled at local level (more than bill introduced in parliament)
6. Listing - Companies can list directly in foreign stock exchanges; Listing of NCD would not make the company 'public'
7. PSE - Major changes - PSEs would exist only in 'defined areas'; max of 4 PSE in such areas; all sectors open for private; PSEs exceeding the limit would be privatized, merged

 

[johanna03]

@zashmaster Can someone eli5 how does all this help Kickstart economy? Are there more burdens of tax coming on middle class?
How is Government ensuring all such schemes trickle down to the needy and not eaten by bureaucrats.

 

[pamelajean]

@johanna03 It doesn’t. The govt just does not have the financial room to provide immediate relief.

 

[trustfall]

@johanna03 It doesn't - As simple as that

 

[kateetak]

@trustfall If it doesn't can someone ELI5 what it actually does ?

 

[trustfall]

@kateetak "Try" to keep optimism up in the economic diaspora. There isn't anything which can "kickstart" the economy in the measures. Most of the measures are just logical steps for general betterment of economy which should anyways have been taken, Covid was not required to do all this. In the short-term the most one can derive from these measures is a bit of liquidity in hands of some people but the point is those are going to be very few in numbers and the delta liquidity is no where near it was appearing to be.

Take example of EPF and TDS measure, NOTHING has gone off from government treasury. They haven't commited to spending anything, it's just the deference of collections mostly for the salaried folks. For agricultural measures taken, let's be honest, they were long due and I still don't see anything covid specific. The stimulus is just notional, indicative and long term in nature prima facie, nothing is going to change in the short term.
This seems to have been planned by someone who was more focused on uplifting the market sentiments for a short while rather than actually helping the economy out from the covid pothole.

 

[vinylsidingsavannahga]

@trustfall Yes. Correct. Now tell me some suggestions on what should have been done so that I can further educate myself

 

[trustfall]

@vinylsidingsavannahga Including salaried population in the corpus for providing releif under the 25 pc TDS deferral, this way it could have actually impacted a lot more people and helped them from a cash crunch perspective. The due taxes are anyways going to be recovered by the gov by the end of the year.

Exempting equity from LTCG, a long shot but people have been expecting this from quite a while. This would have helped inflow of cash from outside the country. How about direct benefit transfer??
Karnataka has committed to doing this for labour earners, taxi drivers and low wage earners. 20 lakh crore would have enabled the government to do all this no?

Also, how about implementing policies floated and teased by government from a long time, for example, automobile scrappage policy which gadkari has mentioned n number of times as something they plan to implement, what better time to do it now when automobile sector is in a state of shambles due to covid now.

 

[enarvaez3096]

@johanna03 Increased NREGA outlay would directly address demand in rural areas. But it is a small sum - 3B USD. (For comparison, American stimulus payments were 400B, and they're planning on doing it again). But it is a measure that directly addresses the problem, FWIW.

Liquidity and guarantee measures would stabilize certain markets, prevent things from crashing, but wouldn't directly assist with recovery.

Your larger point is correct, in that while a lot of the reforms announced are non-trivial improvements, it's like taking whey protein when you're recovering from a fracture, i.e. don't directly address the kickstarting problem.

As to whether the government has bandwidth to borrow more for an aggressive recovery, this is a contentious issue. Conservative schools of thought advocate for fiscal discipline, keep your debts low, fiscal deficits in check etc. More modern and unorthodox schools, such as MMT, say that a government can not go bankrupt for debt in its own currency.

That is, if GOI issues debt in USD, at the time of paying it back, it can run out of USD reserves, which would result in a sovereign default and spark an economic crisis. But for debt issued in INR, GOI can not run out of money as it holds the power to create more INR. And GOI does not issue dollar bonds, and most money owed is in INR, which gives us plenty of room as per MMT. Whether that's a correct take or not is intensely debated, but it is the school that say, the United States is adhering to when it decides to create 4T USD worth of debt out of nowhere.

 

[resjudicata]

@zashmaster First time after day 1, I saw the type of short term relief measures I was expecting all along. States' borrowing limits enhanced, bump in MNREGA allocation, IBC suspension for 1 year

 

[fbrooks83]

@resjudicata Happy cake day Buddy!

 

[resjudicata]

@fbrooks83 thanks! I did not realize I am another reddit year old today.

 

[dhaniel]

@zashmaster The one year moratorium on bankruptcy proceedings is surely anti-competitive and brazenly against basic laws of economics.

It's natural that weak firms will get bankrupt due to the pandemic and most of the blame would lie with these firms (excessive leverage, bad business models, weak promoter interest, misuse and inefficient allocation of capital etc).

Why not allow these firms to fail?

Just because these firms get bankrupt, it doesn't mean that they are wound up. Most likely, a better and more resourceful competitor would buy these inefficient and weak firms (like Arcelor Mitral who purchased perennially lagging Essar Steel and helped recover nearly 50,000 crores in NPAs).

Why is the government intent on protecting promoter interest at the cost of market welfare, economic efficiency and consumer interest? In a competitive market, inefficient firms are (have to be) weeded out.

In every other country, bankruptcy proceedings have been permitted despite the pandemic. And, large companies like JC Penney and Virgin Australia airlines have declared bankruptcy (Virgin even got eight new bidders for takeover after declaring bankruptcy).

Why should India be different? Why should we suffer because a few Indian promoters are inefficient and incompetent?

To be true, the moratorium reeks of rent seeking. A few Indian promoters, facing risks of bankruptcy, have likely lobbied for such a moratorium. Expect more credit dole outs, debt restructuring and evergreening of loans even as middle-class struggle.

Did someone say this government believes in free markets?

 

[resjudicata]

@dhaniel The problem in India is we are neither a right wing economy nor a left wing economy. So while in a capitalistic economy it is quite easy to let the bankruptcy carry on since some other firm will rise up and take its place, in India this will not happen. On the other hand a lot of left wing economic countries do this to protect workers and their jobs. India does not do that either, on top India is dealing with the highest unemployment. This government has tried going the right wing economist way and protected the businesses hoping they will recover enough to provide jobs, also in tune with what US has been consistently in the news for doing.

If these firms file for bankruptcy, most people working here will lose their jobs and there is no other company which will be able to hire them. With our high population, it is impossible to let everyone have a job while letting these firms fail. Of course, the Indian promoters know this and lobby accordingly.

 

[montse811]

@resjudicata

The problem in India is we are neither a right wing economy nor a left wing economy.

We are a left wing economy.

 

[resjudicata]

@montse811 Not really. We are a left wing economy show off. We like to tell people that we are into socialism and stuff. But our economy is built completely for the rich. And it is not just the current government. India has had tremendous wealth inequality for a really long time now. We have no laws which protect the poor or their assets. We give away tribal lands to the rich and destroy the environment without any thought. Multiple such examples have appeared in the very recent past. Our socialism is a face we put up so that the ultra rich can remain ultra rich while the poor keep voting in one government after another just to survive.

 

[montse811]

@resjudicata

But our economy is built completely for the rich.

That's how most current left wing governments work. Crony Capitalism & rent seeking is a big part of left wing governments.

 

[dryerfire]

@montse811 Then those govt are also left wing economy show off. Definitions don’t change with time.

 

[resjudicata]

@dhaniel

Most likely, a better and more resourceful competitor would buy these inefficient and weak firms

You're dreaming if you think in this economy, IBC would be able to find any suitors in the market. Do you think Arcelor would commit 50k crore if Essar was undergoing resolution right now?

If IBC starts the process, not only will equity get wiped out 100% even the debt would take a significant haircut. It would probably be a bloodbath as everything is liquidated at throwaway prices.

There are no buyers in the market, even if there was one, no bank would back their bid. Suspending it for a year is better for banking industry, sell the goods when there are buyers in the market.

IBC makes sense one when one inefficient firm in an industry is in trouble. Not when entire industry is in trouble

 

[giaeve]

@dhaniel Arvind Subramanian and Josh Felman provided a mechanism to address this issue without punishing companies largely undone only because of the Pandemic:

https://indianexpress.com/article/o...sector-arvind-subramanian-josh-felman-6403562