Finance Minister Nirmala Sitharaman announced the Prime Minister’s Garib Kalyan package — a range of measures that the Government of India will take to alleviate the economic, health, and food-related distress of India’s poor in the wake of the national lockdown to combat the spread of the novel coronavirus.
The FM said the package will cost the national exchequer Rs 1.7 lakh crore, which is 0.8 per cent of India’s estimated gross domestic product in the current financial year (about Rs 204 lakh crore). However, not all this money is in addition to what was announced in the Union Budget; some of the announcements refer to expenditure which would have happened under normal circumstances as well.
What does the PM Garib Kalyan package entail?
Ever since last Sunday’s (March 22) Janata Curfew, there have been demands that the government should come out with a relief package for the poor, as well as those in the informal sector, which accounts for 90 per cent of all jobs in the country — the demands increased after Prime Minister Narendra Modi announced a 21-day national lockdown starting March 25.
The FM’s previous relief package, announced on March 24, was primarily targeted towards the firms in the organised sector of the economy. The PMGK, which came 36-hours after the start of the national lockdown, attempts to plug these gaps.
What help is being provided to poor and those in unorganised sector?
The help is in two ways — free food grains, and cash transfers.
- the central government, working with the state governments, will provide an additional quota of food grains free of cost to all 80 crore beneficiaries under the Public Distribution System.
As such, PDS beneficiaries will get 5 kg of wheat (or rice) per month for the next three months. Additionally, each household (or family) — typically, a household is assumed to have 5 members — will get 1 kg of pulses per month.
- the government announced 6 types of additional cash transfers. These are:
* Rs 2,000 per farmer to 9 crore farmers under the PM-KISAN scheme.
* An additional Rs 1,000 per month pension for the next 3 months for those receiving old age, widow or disability pensions. This is one-time payment; in other words, it does not mean their basic pensions have been raised. This is expected to help 3 crore beneficiaries.
* Rs 500 per month will be transferred for the next 3 months to women holding a Jan Dhan bank account. This is expected to help 20 crore women.
* Over 8 crore women who are registered beneficiaries under Ujjwala Yojana will get one LPG cylinder per month for the next three months. While this is not exactly a cash transfer, these cylinders will be free of cost.
* Women Self Help Groups across the country — roughly around 63 lakh of them — can now take collateral-free loans up to Rs 20 lakh instead of the existing limit of Rs 10 lakh. This too, is not a cash transfer, rather an enabling provision for receiving higher credit.
* Wages paid for manual labour under MGNREGA have been increased from Rs 180 per day to Rs 202 per day. According to the FM, this move will help 5 crore households (since only one person per household can avail of employment under MGNREGA) and enable them to earn Rs 2,000 as additional income. However, the work needs to be done in a manner that ensures social distancing.
What help is being provided to poor in organised sector?
This help essentially relates to the Employees’ Provident Fund. There are two initiatives announced by the government — one in which the government actually pays on behalf of the poor and the other in which it enables the poor to withdraw their own money from their EPF accounts.
Under the first provision, the GoI will pay the EPF contributions — 12% of the basic salary — of both the employees and the employers for the next three months. However, this move applies only to about 4 lakh firms where the total number of employees is less than 100, and where 90 per cent of the employees earn less than Rs 15,000 per month.
The move is aimed at reducing the monetary strain on small firms in the organised sector that may feel compelled to fire employees given the mounting financial strain.
Secondly, the government has amended the Employees Provident Fund Organisation (EPFO) regulations to enable workers to withdraw a non-refundable advance from their EPF accounts. This amount is, however, limited to 75 per cent of the total money in one’s EPF account, or one’s salary for three months, whichever is lower.
So, if one earns Rs 20,000 per month, and has Rs 1 lakh in one’s EPF account, then one can only withdraw Rs 60,000 from it (not Rs 75,000). This move is expected to help close to 4.8 crore workers registered with the EPFO.
What about construction workers?
The construction sector traditionally employs a large number of people, especially those who leave villages and farming out of distress, and come to cities looking for work. However, construction activities have been severely hit over the past few years, given the sharp slowdown in the Indian economy as well as the mess in India’s real estate sector.
The complete shutdown of economic activity as a result of the lockdown has essentially rendered all labourers jobless overnight.
To alleviate the economic distress of construction workers, the government has asked state governments to use the money — roughly Rs 31,000 crore — already available in a welfare fund for construction workers.
In the current situation, which is the most significant component of the Rs 1.70 lakh crore Pradhan Mantri Garib Kalyan Yojana relief package announced by Finance Minister?
The increased entitlement of foodgrains supplied through the public distribution system (PDS) is a major intervention. A typical poor household having five adult members consumes 50-55 kg of cereals and 4-5 kg of pulses every month. Currently, the PDS provides 5 kg of cereals per person per month at Rs 2/kg and Rs 3/kg for wheat and rice, respectively. That is 25 kg for a family of five.
Under the package, an additional 5 kg of wheat or rice would be given per person per month, free of cost. The doubling of entitlement, effective for the next three months with the extra grain coming free, will practically meet the family’s entire cereal requirement. Roughly 80 crore persons or two-thirds of India’s population covered under the National Food Security Act will benefit. These poor or lower middle class sections, impacted most by the lockdown, will no longer need to buy any wheat or rice from the market. Further, they will receive 1 kg of pulses per family per month, again free of cost for the next three months. That would meet 20-25% of their total requirement.
How much will all this cost? And how effective will it be on the ground?
The effectiveness will be more in states with well-functioning PDS. That is, Kerala, Tamil Nadu, Chhattisgarh and Odisha — but not Uttar Pradesh or Bihar. The Food Corporation of India (FCI) in 2019-20 has incurred an expenditure of Rs 26.80 for procuring and distributing every kg of wheat, and Rs 37.48 per kg of rice. At an average economic cost of Rs 30/kg, 80 crore persons being provided 15 kg each of free grain (over three months) would translate into an additional outgo of Rs 36,000 crore.
But there are savings as well. The economic cost does not include the FCI’s expenses in holding and maintaining excess stocks in its godowns. This “carrying cost” — basically interest and storage charges — is estimated at Rs 5.61 per kg in 2019-20. On 12 million tonnes (mt) of grain — which is what 15 kg for 80 crore people would be — that works out to over Rs 6,700 crore. The net outgo for the exchequer will then be well under Rs 30,000 crore. Even after adding Rs 4,000 crore towards giving 3 kg of pulses free to 20 crore families — the estimated economic and carrying cost here is Rs 60-70 per kg — the total outgo will not exceed Rs 35,000 crore. And given that FCI and the National Agricultural Cooperative Marketing Federation of India are now holding some 77.6 mt of cereals (3.5 times more than required) and 2.2 mt of pulses respectively, this is also an effective way to dispose of excess stocks.
What is the other substantial relief measure announced?
Sitharaman has said that LPG gas cylinders would be distributed free to 8 crore poor families for the next three months. Taking an average non-subsidised cylinder price of Rs 800 and three cylinders each over three months for these families, the financial cost will be Rs 19,200 crore. But it is also worth bearing. The least that the government can do for those worst hit by the lockdown is to secure their basic dal, roti and cooking fuel requirement.
Will enhancing daily wages under MNREGA by Rs 20, from an average of Rs 182 to Rs 202, help?
Not really, in a lockdown, where there’s little scope to undertake MNREGA works. In today’s context, all MNREGA households — a total of 13.65 crore job cards have been issued, of which 8.22 crore are active — should ideally be given an unemployment allowance. The Finance Minister has claimed that the Rs 20 wage rate hike will result in an additional income of Rs 2,000 per household. This is a theoretical calculation, assuming all job card holders are provided 100 days of guaranteed wage employment under the scheme. When daily wage earners are supposed to remain at their homes, the only way to compensate them under MNREGA is through unemployment allowance. The onus for paying that under the Act is, however, on the state governments. It is unlikely they would make the necessary budgetary provision.
The relief package also seems to have cash transfer components.
Yes, but not very substantial. A total of 20.4 crore of bank accounts belonging to women under the Pradhan Mantri Jan Dhan Yojana are to be credited Rs 500 each per month for the next three months through direct benefit transfer (DBT). That is hardly any recompense for those forced out of work. Nor is payment of Rs 2,000 to 8.7 crore farmers under the Pradhan Mantri Kisan Samman Nidhi anything to write home about. Farmers are already receiving an annual income support of Rs 6,000 under this scheme, with the first installment payment of Rs 2,000 for 2020-21 anyway due in April. There’s no additional financial implication here — at a time when farmers are facing both lower crop prices due to a coronavirus-induced market collapse, and higher harvesting costs on account of labour shortages from the lockdown.
What does the package really amount to?
The main problem for poor and vulnerable households today is liquidity stress. Unlike big businessmen or the salaried middle class, these are people with no balance sheets, reserves, or bank balances. Every day’s loss of work for them means cutting down even basic consumption and going deeper into debt. Free grain can help, but does not address the real crisis, which is of liquidity. They need cash to buy essential things other than just food — and most of them had it till the other day.
How far will these measures help poor?
The announcements related to the provisioning of food grains via PDS will be especially helpful. However, a few points need to be flagged.
One, some of the measures would have happened on their own. For instance, MGNREGA wage increases typically happen in April. Similarly, the first instalment of Rs 2,000 under PM KISAN would have been due in April.
Two, some of so-called cash transfer amounts are too small (like Rs 500 per month for women Jan Dhan account holders); some others are not really there (like the doubling of loans for women SHGs).
Three, there is the question of implementation.
For instance, at present many construction workers and labourers are struggling to reach their homes. To receive help, they will need to have been registered in a particular state, but there is nothing to assume that they are in the state in which they are registered.
Similarly, it is an open question how manual labour under MGNREGA can happen while maintaining social distancing. If a lot of people join in, there would be a concern of disease transmission — and if very few join in (fearing the disease) then the hoped-for benefit may not actually accrue.