Governments and central banks all over the world are trying to rescue their economies from the debilitating impact of the coronavirus. Until a month ago, the size of India’s relief plus stimulus package was Rs 1.7 lakh crore – about 0.8% of its GDP. On a comparative scale, we had the following response from the G10 countries (expressed as a % of GDP) as of the end of March 2020.
| US | Japan | UK | South Korea | Canada | Australia | Germany | Spain | France | Italy | |
| Fiscal Stimulus
| 6.5 | 1 | 3.8 | 3.6 | 1.8 | 3.7 | 2.2 | 1 | 1 | 1 |
| Safety Net (Ease in Tax and Loans payment)
| 4.5 | 6 | 1.2 | 1.2 | 2.4 | 0.3 | 1.7 | 1.1 | 1 | 0.5 |
Naturally, this was a huge embarrassment for us and so there was immense pressure on the government to come out with a bigger relief package. Some experts were suggesting that the size of the relief should be at least 5% of GDP.
THE PRESSING PROBLEMS
The various problems that the pandemic is besieging all countries including India are unemployment, demand shock, supply chain disruption, loss of production and productivity and a complete absence of the ability to confidently forecast and plan for future cash flows. For India, there were two pressing issues. One was transporting stranded labourers to their native villages and towns. And the other, to provide food for the millions of Indians whose income was based on the daily wages earned by doing odd jobs and providing manual labour to the informal economy. It is estimated that around 400 million people in India can still be categorised as the poor and the vulnerable. The Indian MSME (Micro Small Medium Enterprise) sector makes up 30% of our GDP, 45% of manufacturing and about 50% of exports. This section of the populace and industry required immediate aid. Let us look at how the government approached these challenges.
THE LARGESSE AND THE TRANCHES
On 12 May, our Prime Minister addressed the nation and announced an economic package of “20 lakh crore for 2020”. However, the PM did not divulge any details of the “Atmanirbhar Bharat Abhiyaan” (Self Reliant India) or “ABA” package and said that his Finance Minister would spell out the details. The FM also spelled out the specifics in “four tranches of announcements”. Why was this method followed in communicating public policy is beyond comprehension.
Critics have dubbed the entire package a ‘narrative and mathematical jugglery’ that does not address India’s core economic problems. So unlike relief packages announced globally, our ABA package is not entirely made up of new spending. Undoubtedly, the package contains some positives and it will benefit the concerned stakeholders.
According to a report in the Economic Times (16 May), the ‘ABA’ package offers the following: Collateral free loan of Rs 3 lakh crores for MSMEs; Definition of MSMEs revised – the move will allow MSMEs to aim for expansion without losing benefits. Also, there’ll be no distinction between manufacturing and services sector MSMEs; National Portability Ration Cards can be used in any ration shops that will be applicable across the country – One nation One ration card; Structural reforms in 8 critical sectors – Coal, Minerals Defence Production, Airspace management, Social Infrastructure Projects, Power distribution companies, Space sectors and Atomic Energy.
ONLY CREDIT, NO CASH?
If we look at the split of the 20 lakh crores that is supposed to stimulate the economy, we will realise that most of that ‘stuff’ is credit and not cash. For example for MSMEs, the allocation is 3 lakh crores but in the form of collateral-free loan. Non-bank lenders receive Rs 30,000 crores liquidity scheme plus Rs 45,000 crores partial credit guarantee scheme. Distribution companies (DISCOMs) get a one-time injection of Rs 90,000 crores liquidity. Reduction of 25% rates of TDS – releasing Rs 50,000 crores. Extending Rs 30,000 crore additional capital emergency funds through NABARD or small and marginal farmers. Rs 2 lakh crores of concessional credit to boost farming activities under the PM Kisan Credit Card. The list goes on.
What did the government miss for which it is being squarely criticised? It took 51 days after the lockdown was announced to give something to the migrant workers who are suffering unbearable and indescribable pain as the state completely abandoned them. They are now entitled to 2 months of ration. Their transportation in some form or the other along with some form of support to take care of their food requirements should have been its top priority.
A series of initiatives or schemes should have been the order of the day to alleviate the plight of the urban unemployed, small farmers, daily wage labourers. If we strip down the package and check how much of it is actually new spending, we will realise that the amount is just a fraction of the size of the package announced. As the adage goes, the proof of the pudding is in the eating. How the ABA package will roll out and turn around the economy is a 265 billion dollar question.
A SYSTEM OF COLLECTIVE WELFARE
Every person’s welfare is inextricably bound with the well-being of the community in which he/she lives. If you help your brethren with the wealth you possess, that wealth will circulate and come back to you with many of its benefits, and if you by way of selfishness keep it to yourself or spend it for your personal benefit, it will ultimately be reduced.
In Islam, the concept of personal wealth is quite different from secular and materialistic worldviews. A Muslim believes that his wealth is something that is entrusted to him by Allah. He has not earned it through his intelligence, hard work, rather his wealth is only under his temporary custody and he is obliged to spend that wealth in a manner mandated by Allah Who remains its original Owner and Proprietor.
Thus, a Muslim does not get a feeling of being taxed when he is ordered by Allah to pay 2.5% of his annual savings towards the poor and needy. Zakat is not a tax that one tries to dodge but remains a sought after decontaminant and a purifier of one’s wealth. The system of Zakat is a great tool for welfare and poverty alleviation. The world has to wake up to the worldview that propagates this beautiful system. All other options seem to be running out.