Atmanirbhar (stimulus) package decoding with pros and cons explained

1. Overview of (20 lakh crore package)
 Made by: PurusharthKumar
 Enroll No: A70006418054
 Course: BBA-General
 Sem: 5th
 Topic: Decoding20 lakh crore package of Atmanirbhar Abhiyaan

2. Overview
 Atmanirbhar Bharat Abhiyaan or Self-reliant India campaign is the
vision of new India envisaged by the Hon'ble Prime Minister Shri
Narendra Modi. On 12 May 2020, our PM raised a clarion call to the
nation giving a kick start to the Atmanirbhar Bharat Abhiyaan (Self-
reliant India campaign) and announced the Special economic and
comprehensive package of INR 20 lakh crores - equivalent to 10% of
India’s GDP – to fight COVID-19 pandemic in India.
 The aim is to make the country and its citizens independent and self-
reliant in all senses. He further outlined five pillars of Aatma Nirbhar
Bharat – Economy, Infrastructure, System, Vibrant Demography and
Demand. Finance Minister further announces Government Reforms
and Enablers across Seven Sectors under Aatmanirbhar Bharat
Abhiyaan.
The government took several bold reforms such as Supply Chain Reforms
for Agriculture, Rational Tax Systems, Simple & Clear Laws, Capable
Human Resource and Strong Financial System.

3. The announcements made by the Finance Minister Nirmala Sitharaman
concluded the relief measures undertaken in five tranches by the
government as part of the economic package announced by PM Modi for
‘Atmanirbhar Bharat’. The minister, also provided a tranche-wise complete
break-up of the stimulus. Importantly, the overall package which stood at
Rs 20,97,053 crore, included the Rs 1.92 lakh crore stimulus from measures
announced by Modi recently such as the Pradhan Matri Garib Kalyan
Package worth Rs 1.7 lakh crore. A big chunk, in fact the largest, worth Rs
8.01 lakh crore of the economic package belonged to the various measures
by the Reserve Bank of India in February, March and April this year to inject
liquidity.

4. A self reliant Indiawith 5 pillars
Part-1: MSME focused package & EPF
contribution reduced
Part-2:Package for Poor, Including migrants
and farmers
Part-3: Package for agriculture Fisheries and
Food Processing Sectors
Part-4: New Horizons of Growth
Part-5: Government Reforms

6. First tranche – Rs 5,94,550 crore
The first set of relief measures announced by Nirmala Sitharaman
focused on enabling the Indian economy’s backbone – MSMEs that
employ around 11 crore people and have a GDP share of
approximately 29 per cent. Out of the 16 announcements made by
the minister, six were dedicated to the MSME segment to infuse
liquidity. This included Rs 3 lakh crore collateral-free loans and Rs
50,000 crore equity infusion for MSMEs through Fund of Funds.
Liquidity relief measures worth Rs 30,000 crore were also
announced for NBFCs, HFCs etc. and Rs 90,000 crore for power
distribution companies. The minister also advised states and
regulatory authorities for extending the registration and completion
date of real estate projects under RERA to de-stress developers and
ensure completion of projects for homebuyers to get their booked
houses on time.

7. Second tranche – Rs 3,10,000crore
Nirmala Sitharaman’s second tranche of measures catered to migrant
workers and street vendors. The minister introduced ‘one nation one
ration card’ to allow migrant workers to buy ration from any depot in
the country. A special credit facility of Rs 5,000 crore was announced to
support around 50 lakh street vendors who will have access to an initial
Rs 10,000 working capital. The minister also said that close to Rs 2 lakh
crore will be given to farmers through Kisan credit cards while 2.5 crore
farmers, including fishermen and animal husbandry farmers, would be
able to get institutional credit at a concessional rate. The government
allowed states to fund the food and shelter facilities to migrant workers
from the disaster response fund that would cost Rs 11,000 crore to the
centre.

8. Thirdtranche – Rs 1,50,000 crore
The third tranche of the measures worth Rs 1.5 lakh crore focused on
the agriculture and allied sectors including dairy, animal husbandry
and fisheries as the government announced steps to strengthen the
overall farm sector. Sitharaman announced Rs 1 lakh crore agriculture
infrastructure fund for farm-gate infrastructure including using it for
setting up cold chains and post-harvest management infrastructure.
Other key announcements made by the minister included Rs 20,000 to
be provided to fishermen through Pradhan Mantri Matsya Sampada
Yojana, and Rs 10,000 crore to formalize micro food enterprises. “This
will be a cluster-based approach, with which, local value-added
products can reach global markets,” the minister had said. Rs 4,000
crore for herbal cultivation, a Rs 15,000 crore Animal Husbandry
Infrastructure Development Fund, Rs 500 crore for bee-keeping related
infrastructure development were other packages announced by the
minister.

9. Fourth andfifth tranches – Rs 48,100 crore
 The fourth instalment of the Rs 20 lakh crore package comprised of
reforms for sectors including coal, minerals, defence production, air
space management, airports, MRO, distribution companies in UTs,
space sector, and atomic energy. Sitharaman announced easing
utilization of the Indian air space to reduce air travel cost and
commercial mining in the coal sector and privatizing discoms in
metros to streamline their functions for better accountability. She
talked about private participation in the space sector along with
coming up with a policy for private players.
 Additional Rs 40,000 crore were allocated for the Mahatma Gandhi
National Rural Employment Guarantee Act (MGNREGA) for job
creation in India’s hinterland. The government had earlier allocated Rs
61,000 crore in the budget for this financial year. Sitharaman also
announced the formulation of a new Public Sector Enterprises Policy
that would allow for consolidation of the PSU firms in strategic sectors.

10. Is this a new package?
 Not entirely. While the PM did not give the details, he
did specify that this calculation of Rs 20 lakh crore
includes what the government has already announced
and the steps taken by the Reserve Bank of India
(RBI). This means the total amount of additional
money — that is over and above what the government
would have spent even in the absence of a Covid crisis
— will not be Rs 20 lakh crore. It would be
substantially less.

11. Why?
 That is on the grounds that the PM has incorporated the activities of
RBI, India's national bank, as a feature of the legislature's "financial"
bundle, despite the fact that solitary the administration controls the
financial strategy and not the RBI (which controls the 'money related'
approach). Government consumption and RBI's activities are neither
the equivalent nor would they be able to be included this way. No place
on the planet is this done, explains Prof NR Bhanumurthy of NIPFP.
 For example, when the US is said to have reported a relief bundle of $3
trillion (Rs 225 lakh crore), it just alludes to the cash that will be spent
by the administration — and it has nothing to do with what the Federal
Reserve (US national bank) may have done.

12. So will the actual amountspent by the governmentbe less than Rs 20 lakh
crore? If so, by how much?
 An unpleasant gauge proposes that the RBI's choices have given extra liquidity
of Rs 5-6 lakh crore since the beginning of the Covid-19 emergency. Add this to
the Rs 1.7 lakh crore of the main financial alleviation bundle reported by the
Center on March 26. Together, the two as of now represent 40% of the Rs 20-
lakh crore bundle. That leaves a compelling measure of Rs 12 lakh crore.
 Be that as it may, in the event that the administration is incorporating RBI's
liquidity choices in the estimation, at that point the genuine crisp spending by
the legislature could be significantly lower than Rs 12 lakh crore.
 That is on the grounds that RBI has been coming out with long haul bond
purchasing activities (long haul repo activity or LTRO, to inject liquidity into
the financial framework) worth Rs 1 lakh crore at a time.
 On the off chance that, for the good of argument, RBI comes out with another
LTRO of Rs 1 lakh crore, at that point the general monetary assistance falls by a
similar sum.

13. Why shouldn’t RBI’s package be included in the overall
package?
 That’s because direct expenditure by a government — either by way of
wage subsidy or direct benefit transfer or payment of salaries or
payment for construction of a new hospital etc — immediately and
necessarily stimulates the economy. In other words, that money
necessarily reaches the people — either as someone’s salary or
someone’s purchase.
 But credit easing by the RBI — that is, making more money available to
the banks so that they can lend to the broader economy — is not like
government expenditure. That’s because, especially in times of crisis,
banks may take that money from RBI and elsewhere and, instead of
lending it, park it back with the RBI.
 This is exactly what is happening right now. At the last count, Indian
banks had parked Rs 8.5 lakh crore with the central bank. So in terms
of calculations, RBI has given a stimulus of Rs 6 lakh crore. But the
reality is that it has received an even bigger amount back from the
banks.

14.  Analysts are hopeful that Prime Minister Narendra Modi’s Atma
Nirbhar Bharat programme will be a bigger success than ‘Make in India’
to boost India’s manufacturing.
 This time around, with ‘Atma Nirbhar’ (self-reliance), there is a
targeted focus on specific sectors — defence, pharmaceuticals, and
electronics sectors are most likely to reap the benefits.
 Six years after ‘Make in India’, analysts are hoping that the Atma
Nirbhar Bharat programme will have more material impact on
the country’s manufacturing sector. With the ‘Make in India’
programme in 2014, the Narendra Modi government was pushing
for a one-size-fits-all solution across 25 sectors.
 “None of the key parameters suggest any material improvement in the
performance of the manufacturing sector over the last six years,” said a
report by Citi Research highlighting the inefficiency of Make-in-India.
The share of value-added by the manufacturing sector to the country’s
overall production has remained stagnant between 17 per cent and 18
per cent over the last decade.
 Focusing on specific sectors and pushing for local products to replace
imports is the government’s new strategy.
 Electronics, pharmaceuticals and labour-intensive industries may be
the biggest beneficiaries of Atma Nirbhar Bharat.

15.  With Atma Nirbhar Bharat, analysts see the policy focus shifting from exports
and attracting shifts of supply chains to providing fiscal incentives and putting
in import restrictions instead. Most companies are anyway going to adopt a
‘China plus 1’ strategy rather than entirely move out of China.
 Exports will remain the key focus, as in any developing economy. However, the
fundamental difference between ‘Make in India’ and Atma Nirbhar is the
realisation that India can’t control what the world will buy and therefore, it
should focus on its strengths instead of playing in areas where the global
competition is intense.
 The border tensions in Ladakh gave India the political impetus it needed to put
its plans in place, starting with putting a cap on Chinese investment into India.
 Let’s take pharmaceuticals, for instance. “Out of India’s total bulk drug imports
are 63 per cent of total pharma imports and for some medical equipment the
import dependency could be as high as 86 per cent,” said the Citi Research
report. The government has marked the pharmaceutical sector among the 10
‘champion’ sectors and as a part of this, India is looking for international
companies that would like to move their manufacturing base to the country.

16.  Exports still remain an integral part of Atma Nirbhar Bharat. However, rising
global protectionism, reneging on bilateral foreign trade agreements, and the
expiry of India’s most prominent export incentive scheme — Merchandise
Export Incentive Scheme (MEIS) — indicate that the push on exports is
weakening.
 Margins is where value addition kicks in. It’s not enough for exports to grow,
they also need to bring more value in order to have a beneficial effect on the
economy. Otherwise, some sectors may grow at scale but they won’t necessarily
add to the profit bottom line.
 The foundation for this was laid out ahead of the budget earlier this year, in
India’s annual Economic Survey. The Survey went on to say that while the
short- to medium-term objective is the large-scale expansion of assembly
activities by making use of imported parts and components, giving a boost to
domestic manufacturing of parts and components (upgrading within global
value chains) should be the long-term objective.
 So far, pharmaceuticals, defence manufacturing and electronics have been
given incentives to make more value-added products in India. Going forward,
labour-intensive sectors like leather, textiles and food processing are likely to
see similar thrust, according to Citi Research.

17.  One of the few success stories of Indian manufacturing is the
electronics goods production. During the last couple of years, exports
have doubled to $11.8 billion in 2020 from $6.4 billion in 2018. However,
though the volume of production may have increased, concerns were
raised over value addition.
 “A domestic electronics component manufacturing ecosystem had to
be developed to reduce dependence on imports and fiscal incentives
are planned to develop that ecosystem,” said Citi’s report.
 The idea has definitely improved from Make in India to Atma Nirbhar,
whether the results will be better is something to be seen in a few years
from now.

18. Impact of this Stimulus Package
 Primary Sector: The measures (reforms to amend ECA, APMC,
Contract framing, etc) announced for the agricultural and allied
sectors are particularly transformative.
These reforms are steps towards the One Nation One
Market objective and help India become the food factory of the
world.
 These would finally help in achieving the goal of a self-sustainable
rural economy.
 Also, the MGNREGA infusion of Rs 40,000 crore may help in
alleviating the distress of migrants when they return to their villages.

19.  Secondary Sector: Given the importance of MSMEs for Indian
economy, the Rs 3 lakh crore collateral-free loan facility for
MSMEs under the package will help this finance-starved sector and
thereby provide a kickstart to the dismal state of the economy.
Also, as the MSME sector is the second largest employment generating
sector in India, this step will help to sustain the labour intensive
industries and thereby help in leveraging India’s comparative
advantage.
 Additionally, limiting imports of weapons and increasing the limit of
foreign direct investment in defence from 49% to 74% will give a much-
needed boost to the production in the Ordnance Factory Board, while
reducing India’s huge defence import bill.

20.  Tertiary Sector: The government has adopted a balanced
approach in addressing concerns across sectors. For
example:
The newly launched PM e-Vidya programme for multi-
mode access to digital online education provides a uniform
learning platform for the whole nation, which shall enable
schools and universities to stream courses online without
further loss of teaching hours.
 Public expenditure on health will be increased by investing
in grass root health institutions and ramping up health and
wellness centres in rural and urban areas.

21. AssociatedChallenges
 Issues Related to Liquidity: The package of Rs 20 lakh crore
comprises both fiscal and monetary measures, the latter being in the
nature of credit guarantees and liquidity infusions into banks and other
financial sector institutions rather than the economy per se.
 Majority of the package is liquidity measures that are supposed to
be transmitted by RBI to Banks and Banks to Citizens. This
transmission wouldn’t be as smooth owing to inefficient
transmission of monetary policy.
 Lack of Demand: The lockdown has lowered aggregate demand, and a
fiscal stimulus is needed. However, the package, by relying
overwhelmingly on credit infusion to boost the economy, has failed to
recognise that investment will pick up only when people across income
segments have money to spend.
 Lack of Backward and Forward Linkages: Unless the rest of the
domestic economy is revived, the MSME sector may face a shortage of
demand, and its production may soon sputter to a close.

22.  Burgeoning Fiscal Deficit: Government claims that the
stimulus package is around 10% of India’s GDP. However,
financing it would be difficult as the government is worried
about containing the fiscal deficit.
 Difficulty in Mobilising Finances: The government seeks a
disinvestment to mobilise the finances for the plan.
 However, the majority of Indian industries are already a bit
debt-laden to take up the stake in PSUs.
 Further, it is difficult to borrow the foriegn markets, as rupee
with respect to dollar is all time low.

23. Steps To Be Taken
 Enhancing Demand: The economic package for the country emerging
out of the lockdown requires a stimulus enhancing demand across the
economy.
 The best way for this is to spend on greenfiled infrastructure.
 Infrastructure spending uniquely creates structures that raise
productivity and extends spending power to the section of the
population most affected by the lockdown, namely daily wage
labourers.
 Mobilising Finances: For financing of the stimulus package, India’s
foreign reserves stand at an all-time high which could be strategically
used to finance its needs.
 The rest may have to come from privatisation, taxation, loans and
more international aid.
 Holistic Reforms: Any stimulus package will fail to reflect the trickle-
down effect, until and unless it is backed by reforms in various sectors.
 Thus, Atma nirbhar plan also encompasses the unfinished agenda
of holistic reforms which may include reforms in Civil services,
Education,Skill and Labour, etc.

24. Conclusion:
 The economic crisis triggered by Covid-19 pandemic is much like the
1991 economic crisis, which was a harbinger of a paradigm shift via
liberalisation, privatisation and globalisation. The post-Covid-19 era
may usher in unprecedented opportunities provided the
implementation deficit is adequately addressed.
 The Atmanirbhar Bharat Package is a monumental effort to help
Indians and the Indian economy tackle the COVID-19 scourge and lays
the groundwork for India to become a $5 Tn economy by 2025.
 Conclude that self-reliance will prepare the country for tough
competition in the global supply chain, and it is important that the
country wins this competition. The package will also focus on
empowering the poor, laborers, migrants, etc., both from organized
and unorganized sectors.