Govt does well by not spending much

The Narendra Modi government’s economic package of Rs 20 lakh crore, which is 10 per cent of the gross domestic product (GDP), is being criticized for being financial jugglery. There is hardly any fiscal stimulus; the government is not spending enough money; it is just making it available to restart and revive the economy—such are the charges against the government.

It is astonishing that the government is being slammed for <em>not</em> spending money, for being fiscally prudent. It is a measure of Left influence in public discourse that fiscally responsible measures are receiving flak.

The government has been innovative in augmenting liquidity. For instance, it has slashed the statutory provident fund contribution made by both the employee and the employer from the current 12 per cent to 10 per cent of the salary. This will increase liquidity by Rs 6,750 crore without costing a penny to the government.

Further, the government has issued all the pending income-tax refunds up to Rs 5 lakh, immediately benefiting around 14 lakh taxpayers. This will release Rs 18,000 crore into the system.

Another major step was the Rs 3-lakh crore collateral-free automatic loans for businesses, including micro, small and medium enterprises (MSMEs). The government decided to open an emergency credit line to businesses from banks and NBFCs up to 20 per cent of the entire outstanding credit as on February 29, 2020. Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover would be eligible.

With a cap on interest rate, the scheme can be availed till October 31, 2020. This is without any guarantee fee or fresh collateral. This is expected to help 45 lakh units.

So, while MSMEs will get access to Rs 3 lakh crore, the government will not have to spend that much. As guarantor, it will have to pay only in the case of defaults. This is surely a smart and cheap way of helping MSMEs.

In a similar manner, the government is encouraging non-banking finance companies or NBFCs, housing finance companies, and microfinance institutions to lend money.

The government also said, “All pending refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership, LLP and co-operatives shall be issued immediately.” Again no cost to the government, as it had to pay anyway, but a big infusion of money.

It needs to be mentioned here that when we say no cost to the government, it means no cost to the taxpayer. The critics may say that the government is fooling people. Well, if being fiscally responsible is trickery, I would like the government to do that forever..