Context: The Prime Minister of India announced an economic package of worth Rs 20 Lakh crore and Atmanirbhar Bharat Abhiyan (Self-reliant India Mission) that stressed upon the need to achieve economic self-reliance in the guise of COVID-19 crisis as an opportunity.
More on the news
- The government will be unveiling the details of an economic package which, after including the earlier reliefs announced under the payouts under the Pradhan Mantri Garib Kalyan Yojana and the RBI, would be tantamount to 10 percent of GDP in FY20.
- While addressing the nation, he stressed upon the importance of promoting local products.
- He observed that the crisis has taught us the importance of local manufacturing, local market and local supply chains.
- All our demands during the crisis were met locally.
- Now, it's time to be vocal about the local products and help these local products become global.
Atmanirbhar Bharat Abhiyaan
- The Prime Minister observed that the Rs 20 Lakh Crore package will also focus on land, labour, liquidity and laws.
- It will cater to various sections including cottage industry, MSMEs, labourers, middle class, industries, among others.
- Talking about the positive impact of reforms like JAM trinity and others, brought about in the last six years, the Prime Minister said that several bold reforms are needed to make the country self-reliant.
- These reforms include supply chain reforms for agriculture, rational tax system, simple and clear laws, capable human resources and a strong financial system.
- These reforms will promote business, attract investment, and further strengthen Make in India.
Including RBI’s package in the overall package: An analysis
- The PM has included the actions of RBI, India’s central bank, as part of the government’s fiscal package.
- It is important in the backdrop of the fact that the government controls the fiscal policy and not the monetary policy which is controlled by the RBI.
- This means the total amount of additional money will not be Rs 20 lakh crore.
- It would be substantially less.
- A rough estimate suggests that the RBI’s decisions have provided additional liquidity of Rs 5-6 lakh crore since the start of the Covid-19 crisis.
- Add this to the Rs 1.7 lakh crore of the first fiscal relief package announced by the Centre in March end.
- Together, the two already account for 40 per cent of the Rs 20-lakh crore package.
- That leaves an effective amount of Rs 12 lakh crore.
- When the US is said to have announced a relief package of $3 trillion (Rs 225 lakh crore), it only refers to the money that will be spent by the government
- It has nothing to do with the Federal Reserve (US central bank).
- However, if the government is including RBI’s liquidity decisions in the calculation, then the actual fresh spending by the government could be considerably lower than Rs 12 lakh crore.
- That’s because RBI has been coming out with long term bond buying operations (long term repo operation or LTRO, to infuse liquidity into the banking system) worth Rs 1 lakh crore at a time.
- Now, for the sake of argument, RBI comes out with another LTRO of Rs 1 lakh crore, then the overall fiscal help falls by the same amount.
- 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 is not like government expenditure.
- That is because, especially in times of crisis, banks may take that money from RBI and elsewhere and, instead of lending it, keep it back with the RBI.
The PM observed that in order to fulfill the dream of making the 21st century India’s, the way forward is through ensuring that the country becomes self-reliant.
He also talked of the example of PPE kits N-95 masks, whose production in India has gone up from almost being negligible to 2 lakh each, on a daily basis.
What does it mean ?
- The Prime Minister remarked that the definition of self-reliance has undergone a change in the globalized world and clarified that when the country talks about self-reliance, it is different from being self-centered.
- He said that India’s culture considers the world as one family (Vasudhaiv Kutumbkam), and progress in India is part of, and also contributes to, progress in the whole world.
- The Prime Minister remarked that self-reliance will prepare the country for tough competition in the global supply chain.
Five pillars of a self-reliant India
A self-reliant India will stand on five pillars
- Economy, which brings in quantum jump and not incremental change.
- Infrastructure, which should become the identity of India.
- Technologically driven system, based on 21st century technology driven arrangements
- Vibrant Demography, which is our source of energy for a self-reliant India
- Demand, whereby the strength of our demand and supply chain should be utilized to full capacity.
Image Source: PIB