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Why Rs 1.7-lakh crore relief package may not mean an equivalent fiscal hit in 2020-21

Some of the expenditures announced by the Modi government have already been accounted for in the Union Budget presented in February.

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New Delhi: The Narendra Modi government’s relief package of Rs 1.7 lakh crore for the poor and migrant workers, including free foodgrains and cash transfers to different societal segments, may not increase India’s fiscal deficit for 2020-21 by an equivalent amount.

According to government officials across ministries, some of the expenditures announced Thursday have already been budgeted in the Union Budget 2020-21 even as other overheads have been added.

ThePrint’s calculation — based on available data, estimates and information from the ministries — suggests the relief measures increase the government expenditure for 2020-21 in the range of Rs 1 lakh crore. This is only 60 per cent of the total amount, suggesting that the hit to fiscal deficit could be lower than the banner amount.

The government has budgeted for a fiscal deficit of 3.5 per cent for 2020-21. However, with growth expected to fall to 2-3 per cent in 2020-21 on account of the Covid-19 crisis and economic activity coming to a near halt, government finances are likely to come under a massive strain.

Most of the relief measures announced in the aftermath of the lockdown announced to contain Covid-19 will be in effect from the first week of April.

Spends part of current budget math

On Thursday, Finance Minister Nirmala Sitharaman approved a hike in wages for workers under Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme.

Wages paid for manual labour under MGNREGA have been increased from Rs 182 per day to Rs 202 per day. Sitharaman said this will lead to an additional income of Rs 2,000 annually for the workers and benefit 13.6 crore families.

An official from the Ministry of Rural Development told ThePrint that this wage hike will not lead to a fiscal hit as MGNREGA wages were scheduled to be revised. The wages were scheduled to be linked to the consumer price index-rural (CPI-R) from consumer price index for agricultural labour (CPI-AL) this year and hence the increase in wages was already budgeted in the allocation for the scheme.

Rural Development Minister Narendra Tomar had alluded to the shift in reply to a question in the Rajya Sabha in November last year.

Similarly, the Rs 2,000 pay-out to 8.7 crore farmers amounting to Rs 17,400 crore under the PM Kisan scheme is part of the annual Rs 6,000 paid to the farmers and has only been front loaded to be disbursed in April.

Sitharaman’s announcement of utilising the Building and Other Construction Workers Welfare fund will also have no fiscal implications for the government. The cess’s corpus, which is at Rs 31,000 crore as of now, has been collected by the states at the rate of 1 per cent of the cost of construction of buildings.

However, M. Govinda Rao, an economist and member of the Fourteenth Finance Commission, said the government has not done enough and questioned how these steps can help a person who is trying to return to their village after being rendered jobless.

“This is a very serious crisis. The package is very inadequate because the outgo is little. Something big has to be thought off,” said Rao.

“The main outgo is on providing free food grains and pulses and money to the Jan dhan accounts. MGNREGA wage increase will not happen tomorrow. It will happen over a year. The government is allowing people to withdraw from their own provident fund. That will have no impact on the government,” he said.

“The building and construction workers welfare fund and the mineral fund is also an existing corpus and does not come from the consolidated fund of India.”

Also read: RBI uses bazooka to fight virus with 75 bps rate cut, moratorium on term loan repayments

Additional burden of Rs 1 lakh crore

There will, however, be several expenditures over and above the Union budget, accounting to up to nearly Rs 1 lakh crore.

Chief among them will be the free foodgrains distribution that will cost Rs 45,000 crore, according to an official in the Ministry of Consumer Affairs, Food and Public Distribution.

On Thursday, the Modi government announced free distribution of 5 kg of wheat or rice per person under the PM Garib Kalyan Scheme and one kg of pulses per household under the PM Garib Kalyan Ann Yojana for the next three months to 80 crore poor beneficiaries covered under National Food Security Act (NFSA). The move came to ensure the availability of food to poor people amid the lockdown.

“The government will bear the entire expenditure that will be incurred on the distribution of free foodgrains which will be around Rs 40,000 crore,” said the official who didn’t wish to be named.

“The pulses distribution will cost around Rs 5,000 crore with every household getting one kg of pulses like moong, tur, chana or urad,” added the official.

The decision to provide Rs 500 for three months each to 20.4 crore Jan Dhan accounts opened by women through direct cash transfers is likely to cause the exchequer Rs 30,600 crore.

FM Nirmala Sitharaman’s decision to pay the employee provident fund (EPF) contribution of both the employer and employee for the next three months will cost around Rs 5,000 crore, said a labour ministry official who didn’t wish to be named. The offer was applicable for all entities that have up to 100 employees of which 90 per cent are the employees who earn less than Rs 15,000 per month.

The government will also provide Rs 1,000 to 3 crore widows, pensioners and the disabled, increasing the exchequer spends by Rs 3,000 crore.

Providing free cooking gas cylinders to 8 crore households for the next three months will lead to a substantial outgo for the government. Assuming the government will provide one free cylinder to households in the next three month, the outgo would be roughly Rs 4,000 crore. This will double to Rs 8,000 crore if the government provides two cylinders to households during this period.

The premiums for the Rs 50-lakh insurance cover for 22 lakh health workers are also likely to be an additional expense for the government to incur. Though the contours of the insurance package have not been released, insurance industry officials estimate this could cost the government anywhere between Rs 3,000 crore to Rs 4,000 crore.

Also read: 3 critical steps Modi govt must take to protect people and economy during Covid-19 lockdown


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  1. Very nice well researched article. Theprints detailed coverage with accurate facts is very welcome in this fake news world. Kudos and hats off to the writers.


  3. If the government taken drastic preventive measures during February 2020 itself the government need for go for present so called package. Opposition motion on virus issue debated after hectic delay. Who is responsible for the historical damages. Let us leave it to almighty.

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