Fiscal stimulus – Waiting for Godot

Migrant camp

“Waiting for Godot”- a play by Samuel Beckett in which a fictional Godot never arrives. The title has now become a code or allegory, to describe waiting forever for something which never happens.

The 2014 “election jumla” of Rs 15 lakhs of recovered hawala money to be deposited into each bank account, quickly acquired this moniker.

Rs 20 trillion stimulus – an aspirational goal

The “Rs 20 lakh crore” (trillion) fiscal stimulus could be a repeat. But before we angrily finger the government for misleading us once again, lets pause and consider why it is physically impossible for the government to live up to its commitment in the way, it was understood, whilst also remaining fiscally prudent.

Strictly defined, a “stimulus” means additional cash spent from the government budget excluding (1) the Rs 6.5 trillion increased “liquidity” in the capital markets courtesy the Reserve Bank of India or (2) directed spending or lending- that is ordering publicly owned companies to spend or lend aligned with the government’s relief objectives.

Both these are legitimate levers of economic policy which can reduce the fiscal stress on individuals, families and companies – which is the core objective of a stimulus. Directed spending and lending, in the Indian context, makes sense for providing immediate relief. Publicly owned banks have two thirds of bank assets whilst the aggregate public sector constitutes around one third of annual value added.

Indian public sector entities – ready pools for support in emergencies

Unlike more market-oriented economies, like the US, where the private sector contributes the bulk of value added, the Indian government has more “fire-power” in-house via its publicly owned banks and enterprises during emergencies.


Think of road building in border areas; health services at the local level during Covid-19; the Indian Railways; public banks; the National Buildings Construction Corporation – which is rescuing the millions of investors defrauded by realty developers- or power sector public utilities. Using these additional levers, the government can improve market stability in an upended world.

To be sure our experience with how these “levers” have been manipulated till now is worrying. This is at the nub of the frequent cries to privatize them. But using them to intervene in an efficient and time bound manner, for a limited period, to provide financial and physical succor, is not a sell-out of government’s commitment to reform.

Why 12 is better than 20

Consider that the Union government has already increased its borrowing target this year from Rs 8 trillion to Rs 12 trillion. Why did it stop at Rs 12 trillion?

The answer is to be found in the “target bound” way the Modi government works. In his very first address to the nation, from the ramparts of the Red Fort, on Independence Day 2014, the PM promised that he would provide his “report card” every year detailing performance against targets.

This “business-like” approach appealed immediately in an ecosystem where political promises, till then, had invariably been in the “mai dekhu ga” (I shall see what I can do), the classic, generic response of a zamindar or government officer – there is rarely a difference in attitude between the two – to a supplicant groveling at her feet.

Living within the limits of the UPA excesses

So, what is the “report card” barrier to borrowing the full Rs 20 trillion this year? First, GDP (current terms) is expected to be at least 10 to 15% less than last year ( Shankar Acharya The Lockdown Hammer). Per the second advance estimate of GDP released on Feb 28, 2020 by the Department of Statistics (GDP India 2019-20 ) GDP in current terms last year was Rs 204 trillion. A 10% or 15% reduction this year takes it to between Rs 173 trillion to Rs 183 trillion. Incidentally, our GDP (current terms) was at Rs 171 trillion in 2017-18 – the year of demonetization.

Over the last decade the highest Fiscal Deficit (net borrowing to finance expenditure) as a proportion of GDP, was 6.9% in 2009-10, at the time of the global financial crisis. In PM Modi’s report card this is redlined as an upper bound, a Lakshman Rekha, never to be crossed. 6.9% of Rs 173 trillion is Rs 11.95 trillion and hence the new target of borrowing.

There is never enough for freebies

Will this amount be enough? Yes, more freebies would amount to waste and make government a co-conspirator in the scams, which proliferate at such “go-go times” as we saw in 2009.

Human suffering cannot be compensated with money. There is no gainsaying that. What we can and must do is not to fling money at the poor out of our guilt at how well we live whilst they suffer.

This is what many commentators, civil society advocates and the close community of distinguished, overseas, Nobel Laureate Economists and their domestic wannabes want the government to do.

The bottom 40% of Indian families have been poor for generations. They know how to make-do during adversities. The government must step up targeted and flexible support as food and cash – both of which are in the works. There is also sufficient fiscal room to ramp up the amounts allocated thus far.

The quattro play strategy

More necessary is getting the bottom 100 million of workers – many of whom are migrants- to work again. This requires four bold initiatives.

First, learn from Mexico and Sweden and open the lockdown on May 18 except for small targeted containment zones. Their location will change every month over the next one year, as the disease spreads, as it must.

The National Disaster Management Authority should be specifically mandated to lead, in tandem with epidemic specialists and related institutions, to track, forecast and physically contain the hot spots as they emerge.

Over the next year we will need dynamic surge capacity for containment. NDMA can leverage its existing workforce for this purpose so that the local police are relieved from this duty.

Second, localize the relief operations. Make the 8000 Block Development Officers in rural areas and Ward level Councilors in cities, responsible to ensure that the allocated free food and cash support reaches the beneficiaries.

Three, pick winners from industry for awarding short term emergency financing, till the product and services markets stabilize. Media reports suggest Rs 4.5 trillion of dues are outstanding for MSME. Just liquidating these dues over the next two months must rank higher in priority than more generalized freebies for all units.

It is a mistake to try and preserve specific sectors, firms of sets of jobs just because they employ a lot of people. Inherently un-competitive firms – there are many such- created to exploit tax breaks, which have expired or others which are poorly managed – must go if they are not to become a permanent drag on the public exchequer.

Four, the relaxed regulations for labor have generated anxiety amongst workers. Government must announce a parallel support scheme, which will compensate workers who lose a job, by continued payment of their ESIC and PF premiums and Rs 3000 per month, as a “living wage” for the next six months.

The Union government can avoid the “waiting for Godot” moniker by drilling deeper into the last mile actions needed for Godot to become visible where the rubber meets the road.

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