Author: Pranab Kanti Basu*

Fiscal and non fiscal support: the neoliberal turn

The Prime Minister’s announcement of 20 lakh crore recovery package must have instantly winded the opposition, coming to a goodly 10% of GDP. Subsequently it was clarified that this took into account measures already announced. If we look at the macro aspect, we see that the fiscal, or direct government expenditure component of the package comes to around 1.6 % of GDP, the rest being promised loans and moratoriums to be granted by the financial sector and RBI.

The developed countries too have allocated more through non fiscal measures.

France: around 1.9 % of GDP for fiscal relief and around 13.5% through non fiscal support.

Germany: around 4.5 % of GDP for fiscal relief and about 41 % of GDP for non fiscal support

UK: around 7 % and about 13% of GDP to non fiscal recovery schemes.

Why is the distinction between fiscal and monetary or non fiscal support important?

Suppose you run a retail outlet for garments. You have shutdown because you have little demand and can’t afford the running costs. The bank manager comes to your shop and offers you loans to cover your working capital deficit plus some more. Most likely you would not be tempted to open shop because your original problem remains and you will likely be faced with the prospect of becoming more indebted. On the other hand, if the government comes with the offer to buy your garments that it plans to distribute to those who are not able to afford clothes because of the crisis, you are more likely to open your shop. The latter is a fiscal measure. Besides, the impact of lockdown is highly skewed nature as is most starkly brought into focus by more migrant workers dying as they try to go back home through the largest state, UP, than the number of fatalities resulting from Covid 19 itself in UP. Social justice demands fiscal expenditure targeted to help the poorest.

To take an example: insolvency moratorium for certain classes of business has been increased. Threshold for such relaxation also extended. If you don’t have a market, which was the cause of their insolvency even prior to the covid crisis, how will delay of insolvency issues induce them to start operation with the additional problems generated on account of covid 19?

As we can see from the rough data that is available the highly developed and highly impacted nations too, like India, have allocated more of the recovery packages in the form of non fiscal measures. So we can’t fault Modiji alone on this score. This is understandable because there is homogeneity in the underlying economic philosophy of the policies that all these governments follow. The neoliberal turn that the world took since the seventies of the last century has seen a change in government policy thinking. There is an overriding concern with economy of government policy and with constructing the citizen as a ‘responsible’ economic entity. Individual citizens have to take responsibility for their condition planning their activities much like an enterprise. As the Iron Lady, Margaret Thatcher put it in 1981:

“What’s irritated me about the whole direction of politics in the last 30 years is that it’s always been towards the collectivist society. People have forgotten about the personal society. And they say: do I count, do I matter? To which the short answer is, yes. And therefore, it isn’t that I set out on economic policies; it’s that I set out really to change the approach, and changing the economics is the means of changing that approach. If you change the approach you really are after the heart and soul of the nation. Economics are the method; the object is to change the heart and soul.”

Even if a natural calamity, even if mass death from starvation is staring you in the face, it is best to be economical; it is best to channel your help through the market in ways that make the individual responsible for paying back the relief in the future. This inhuman way of conceiving individuals as ‘human capital’ informs government policies as we become gradually more conservative, racist and also religious bigots the world over.

The non fiscal components of the packages are unlikely to have any positive impact. Unless the confidence of the producers in sustained demand recovery can be induced, the economy will not shift gear. And this cannot be sustained unless the government stands up with unconditional fiscal support to the mass of poor buyers.

Blatant Lies

Reduction in unfunded EPF contributions of a certain category of employers and employees by 2 %. Suppose an employee in this category was paying Rs 1200 monthly into the EPF. The employer was also paying the same amount. Now both the employer and employee will be paying Rs 1000 for the next 3 months. Obviously the take home pay of employee and profit of employer will rise by Rs 200, each. But the burden will be borne entirely by the employee whose retirement benefit will be reduced by the compounded sum of these deductions. This has been shown as a fiscal benefit.

25 % reduction in TDS/TCS payments up to March 2021. But there is no tax rate reduction! So the tax payer will ultimately have to shell out the amount at the time of submission of returns.

Sound and Fury

Much of the pronouncements were costless TV promotional for the ruling party.

An additional 40,000 cr allocation under MNREGA was announced. This is welcome but certain facts need to be recollected. This year the budget allocation had been lowered to 60,000 cr from 61,000 cr. Thus the total allocation now stands at 1 lakh crore.

Prior to the presentation of the 2018 budget, NREGA Sangharsh Morcha, a country-wide coalition of organisations and individuals, had submitted a memorandum to the Union finance ministry stating that there should be an annual allocation in the range of Rs 80,000 crore to be able to minimally function as per its legal provisions. Obviously two years later the figure would be substantially higher.

In December 2017, a study conducted by Rajendran Narayanan from the Azim Premji University, Bangalore, in collaboration with two independent researchers, had corroborated the Morcha’s stand on requirement for more budgetary allocations for MGNREGA. It pointed out that 80% of the funds allocated under the scheme was utilised in just four months, leaving merely 20% for the rest of the year.

 It was announced that public expenditure on health will be increased. All the districts will have infectious disease hospital blocks. This apart, public health labs will be set up at block levels.

These are welcome measures but the insincerity is clear as there is no budgetary allocation. One must also recall that this would involve considerable change of the Modi government policy because for the last two years the percentage of total expenditure devoted to health remained static at 3.5% according to Economic Survey, 2020.

The government announced plans for expanding teaching without classrooms: podcasts, community radio, even special content for hearing and visually impaired.

There is no allocation, indicating this is another publicity gimmick.

The dishonesty is obvious if one considers the figures for electricity availability, as this is essential for all these schemes. The government’s Saubhagya scheme to provide electricity to households shows that almost 99.9% of homes India have a power connection. Mission Antyodaya, a nationwide survey of villages conducted by the Ministry of Rural Development in 2017-’18, showed that 16% of India’s households received one to eight hours of electricity daily, 33% received 9-12 hours, and only 47% received more than 12 hours a day HOW WOULD THESE PODCASTS AND BROADCASTS CATER TO DIFFERENT TIMES OF ELECTRICITY AVAILABILITY?

There is also a worry that the crisis may be used to nefariously start the process of elimination of classroom teaching, which can breed a critical mind that does not adapt to the concept of man as human capital.

Note: To be continued. This is the first part of the article.

*Pranab Kanti Basu is a Professor of Economics for over 40 years. He has been teaching in universities like Viswa Bharati and Calcutta University. He has taught Economics in Ashutosh College, Kolkata for a large part of his teaching life.

Kindly note that the point of views expressed in the article are entirely the author’s personal views. IPD takes no responsibility for the same.


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