FM Sitharaman's fifth tranche announcements

FM Sitharaman’s fifth tranche announcements expose there wasn’t any stimulus package

Economy, India

The fifth and the final tranche of Prime Minister Narendra Modi’s much-hyped Rs 20 trillion-worth “fiscal stimulus” package for COVID-19 is out. On Sunday, May 17th 2020, Finance Minister Nirmala Sitharaman revealed them. Sitharaman’s fifth tranche announcements had nothing that can be considered positive, except an increase in the budget estimate for the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA). This final tranche exposed how big a hoax this Rs 20 trillion package has been.

If Sitharaman’s fifth tranche announcements are summarised then it can be asserted with confidence that the hype around the so-called “fiscal stimulus” was created to bamboozle the politically-crucial urban middle class and appease the rich and super-rich, who sponsor Modi’s Bharatiya Janata Party (BJP). Carrying forward Modi’s plan to sell-off India’s last vestiges of public sector enterprises (PSEs) and the natural resources beneath the earth’s crust, this package was actually the government putting India on sale at a throwaway price.

MNREGA allocation increase

Sitharaman announced that the government will allocate an additional Rs 400 billion for the MNREGA scheme in addition to the budgetary allocation to ensure that the migrant workers who reach their villages get work and wages. However, Sitharaman cleverly concealed the grotesque fact behind the MNREGA story for the current financial year.

The revised estimate (RE) for MNREGA in the financial year (FY) 2018-19 was Rs 618.15 billion, whereas the budget estimate (BE) for FY 2019-20 was Rs 600 billion only. The RE of FY 2019-20, the MNREGA expenses stood at Rs 710.01 billion. Even though the unemployment rate surged to an unprecedented 7.4% at the time the Union Budget 2020-21 was presented by Sitharaman on February 1st 2020, the BE for MNREGA in FY 2020-21(PDF) was fixed at Rs 615 billion, nearly Rs 95 billion less than last year’s RE.

We have seen how Sitharaman didn’t mention the term “unemployment” even once in the longest-ever budget speech delivered in the parliament, and it wasn’t an unconscious omission, rather a conscious decision to assert that there is nothing wrong with the economy. One can’t forget how the Modi regime remained in a denial mode regarding the severe economic crisis that paralysed the country since FY 2016-17. This was a reason that Sitharaman didn’t increase the BE for MNREGA, in the pre-COVID-19 crisis phase. The total allocation for MNREGA, to absorb the rural unemployment during the pre-COVID-19 crisis stage, should have been between Rs 900 billion and Rs 1 trillion. There was a high demand for MNREGA jobs at that time. Yet, Sitharaman conveniently ignored the plight of the rural poor.

Now, with an additional Rs 400 billion allocated for the MNREGA scheme by her is making the total BE Rs 1 trillion, which would’ve been adequate to provide jobs and income to the rural poor for 100 days in the pre-COVID-19 situation. Now that the migrant workers, who were hitherto sending a portion of their income to rural India from the cities, are back to the villages, the cash flow in the rural economy will be definitely affected. This will create a dearth in demand and impact the rural economy. At this point in time, it’d have been a really helpful move for the rural poor in case Sitharaman could increase the allocation to Rs 2 trillion. One needs to understand that the rural economy can’t generate income as fast as the urban economy and, therefore, if there is a lack of fund, a large number of people will be left unemployed and poverty will surge.

This sheer act of showing an increase in the allocation to win kudos, while allowing the poor to continue to suffer is the most tight-fisted, penurious attitude exemplifying utmost disregard for the poor. The same purse strings will be loosened liberally when the need will be from the corporate houses.

Decisions regarding healthcare

Apart from the MNREGA allocations, the finance minister didn’t allocate money for any other project or proposal. Expansion of healthcare infrastructure was a crucial part of Sitharaman’s fifth tranche announcements. She informed that India will be “self-reliant” in hospitals, though its meaning wasn’t clarified as no country sends its patients to the hospitals of other countries during pandemics.

There will be the construction of public health laboratories at the block level and also private parties will be encouraged to open them. All hospitals will have infectious diseases wards from now onwards. Some major health reforms will follow to provide a competitive edge to the private sector vis-à-vis the public healthcare sector.

Even though a public health enthusiast will feel very enthralled with such proposals, the fun factor is that no amount was allocated for this health programme. There was no information on how much money will be allocated and what will be the estimated turnaround time for such ambitious projects. The finance minister said the details will be later provided by her ministry officials. Also, like the other four days, Sitharaman’s fifth tranche announcement contained such banal and off-track subjects that have no direct connection with the issue of providing “fiscal stimulus” to the poor.

Education going online

Considering only wards of urban elites and middle class as students, Sitharaman announced several measures for taking education to digital platforms. On one hand, she announced the formation of a platform for online education, which only the privileged students living in the urban and suburban areas can afford, while on the other, she said there will be one television channel for each standard so that the students can learn from them. Radio and podcast will also be there.

How would the rural and underprivileged students, especially the marginalised ones, afford to avail online education? Even if 12 television channels are launched by the government, and considering them to be free, how’d all students afford them, as many won’t even have a television at home? Which board’s course will be followed in these television channels and in which language?

Moreover, as many of the under-privileged students are first-generation learners, how would they learn on their own from the television as there will be no interaction between the students and the teachers? Same questions prevail for radio and podcasts.

Sitharaman also claimed that there will be special modules made for physically-challenged students so that they can also learn sitting at home. Even in this case, the socio-economic background of the students will play a crucial role in helping them learn.

There is a proposal to provide mental health support to students and bring all of the top 100 universities to the online education model. Around 200 new books will be added to the e-Pathshala. Another elitist proposal for the “haves” and not the “have nots”.

Alike the healthcare overhauling plan, no fund allocation was made for these education programmes. There is also no mention of timeframe and how these projects will be implemented and by whom.

Insolvency and Bankruptcy Codes

The Insolvency and Bankruptcy Codes (IBCs) went through some changes to ensure the corporate houses get some breather during the COVID-19 pandemic. Sitharaman’s ministry has been abruptly helping most of the companies that are seeking respite through the IBCs. As a new proposal in Sitharaman’s fifth tranche announcements, the corporates are given respite on all debts taken during the COVID-19 period. Such debts shall be excluded from the IBC default.

Though neither Sitharaman announced the time period during which debt will qualify to be under the COVID-19 period nor she clarified how long the debt will be excluded from the IBC default, this measure will give the corporate entities that have and that will take loans from public sector banks (PSBs) an impetus to borrow more without worrying about their loans turning into non-performing assets for the PSBs. Plus, no fresh insolvency proceedings will be entertained for the next year.

Apart from this, Sitharaman also announced that there will be a new insolvency framework for the medium, small and micro enterprises (MSMEs), to whom she is showing a lot of – apparently fake – generosity at this point in time.

The minimum threshold for insolvency of the MSMEs is raised from Rs 100,000 to Rs 10m. This, according to the government, will provide an impetus to the MSMEs to perform well. The issue, however, is that the government’s delay in paying the MSMEs for their goods and services create a major financial issue for the sector. If the government can clean up the payment system related to MSMEs, then the cases of default in the sector can be arrested.

Changes in the Companies Act

Sitharaman’s fifth tranche announcements had a lot of new provisions, and some of the refurbished provisions, for the corporate houses operating under the Companies Act. Before the lockdown and during it, all compliance deadlines were extended. The finance minister reiterated this while making the corporate houses – whose fuel runs the BJP’s engine – happy with relaxations.

Most of the technical violations in compliance with the Companies Act will be decriminalised to ensure that the corporate houses, including those who use companies and shell companies to violate laws, are not prosecuted for their lapses. This will eventually give leeway to board room manipulations that will cover up scams. The tribunal mechanism will be done away with for seven compoundable offences. Five among them will go to an internal adjudication mechanism, which will provide a big legal relief to unscrupulous companies.

Indian companies are allowed to list themselves in foreign exchanges, which will mean more foreign investment and control over the Indian crony-comprador businesses. Moreover, the listing of non-convertible debentures won’t be considered as the listing of the company itself.

Attack on PSEs

If Sitharaman’s fifth tranche announcements should be remembered for anything then it will be for opening all sectors of the economy for the private sector. The remnant commanding role of the PSEs and Central PSEs (CPSEs) will be done away with from all sectors except a few strategic sectors.

Even in each strategic sector, a maximum of only four PSEs or CPSEs can exist. If there are more than five PSEs and CPSEs, for the sake of the BJP’s donors they will be either merged or privatised. When it’s all sectors, then it includes railways, oil and natural gases, electricity generation, shipping, etc, which are key to India’s economic sovereignty and social welfare.

In case these sectors are privatised, then India’s economy and the lives of the poor will be adversely affected. Yet, the minister continued advocating privatisation as a way to move forward, when throughout the world it has shown disastrous results, especially during the COVID-19 crisis, which exposed the vulnerability of big capitalist countries like the US, the UK, etc.

Loans and refunds to the states

During Sitharaman’s fifth tranche announcements, she spent a great deal of time to inform the press that the government is repaying the states their dues and also helping them in all possible ways to fight the COVID-19 pandemic. Sitharaman informed that Rs 460.38 billion tax devolved as per BE of FY 2020-21. She also said that revenue deficit grants worth Rs 129.30 billion have been given to the states.

Also, in the meantime, the disaster relief funds of the states were released from April first week, and until now a total of Rs 110 billion has been given. Apart from her ministry, the Union health ministry has also released Rs 41.11 billion due to special health-related requests.

Sitharaman informed that the Reserve Bank of India’s (RBI) fund limit to states is increased by 60% and the states are allowed continuous overdraft for 21 days. The number of days a state can be in overdraft position in a quarter is also increased to ensure they have the leverage. Now amid the pandemic, no special grants are given to the state from the government’s coffer. No special arrangement is made to provide the states with funds to curb the pandemic. As most of the states are ruled by the BJP, so there has been not much hullaballoo on the issue.

Moreover, the Union government has apparently increased the net borrowing ceiling for the states. This, like the rest of the announcements of the past tranches, is centred around states borrowing money rather than getting grants from the Union, to which they pay taxes. Sitharaman isn’t happy that the states have only borrowed 14% of what they are supposed to and wants them to borrow more, jeopardising their own economic health.

The net borrowing ceiling of the states was hitherto 3% of GDP for states (GSDP). Now, with some conditions this ceiling is increased to 5% of the GSDP, ie, a two percentage point increase. An additional Rs 4.28 trillion will be allocated by the Modi regime for this lending, however, it’s subject to the states meeting the conditions.

So, a state has to execute four reforms that the Modi regime is pushing to be eligible for the increased amount. The borrowing exceeding 3% to 3.5% is unconditional, however, from 3.5% to 4.5%, this one percentage point will be given in four tranches whenever each reform measure is taken up by a state. The last half percentage point will be released only when the pre-set milestones are achieved in three out of four reform programmes.

By dangling such conditions for extra borrowing before the states, Sitharaman is forcing them to toe the line of the Modi regime, irrespective of their political will. The loan package she is offering to the states will not eventually help them to meet their expenses or carry out the necessary tasks like the rehabilitation of the poor people, especially the migrants returning home. Also, the Union government isn’t helping the states adequately by providing them relief for the taxes they have foregone due to the lockdown since March 22nd.

The arithmetic of the Rs 20 trillion-worth package

Sitharaman’s fifth tranche announcements ended with her giving a total calculation of the purported “fiscal stimulus” package. The breakdown is given by the tranches announced by her since May 13th 2020.

According to Sitharaman, the amount allocated is as following

Tranches and dateAmount in Rs trillion
First tranche on May 13th 20205.94
Second tranche on May 14th 20203.10
Third tranche on May 15th 20201.50
Fourth and fifth tranches on May 16th and May 17th 20200.48
Total announcementRs 11.02 trillion

Therefore, according to Sitharaman, a total Rs 11.02 trillion (almost all liquidity infusion and no stimulus) has been announced in the five tranches. The Rs 1.73 trillion package announced in March, the emergency health sector capital expenses, the payment of provident fund for employees for a period of six months, the revenue lost by the Union government and the RBI’s liquidity infusion worth around Rs 6 trillion, when combined together, make a package of Rs 20.97 trillion. This is what the prime minister called a historic move of allocating 10% of the country’s GDP as an economic stimulus!

From the dilution of labour laws to the privatisation and liberalisation of all sectors, the Modi regime attacked the poor taking cover of the COVID-19 pandemic. India is now mortgaged to the big corporations by the Modi regime. It’s not that whether the people will resist these anti-people measures but how soon they will rise up against these injustices is worth watching. Sitharaman’s fifth tranche announcements, along with the previous four, proved that the Modi regime never had a “stimulus package” at the first place, forget providing money to the poor. This package will go down the annals of history as one of the biggest betrayals by the Modi regime and the BJP.

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An avid reader and a merciless political analyst. When not writing then either reading something, debating something or sipping espresso with a dash of cream. Street photographer. Tweets as @la_muckraker

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