Covid Financial Package not meant for the People

Originally published at:

On his address to the nation on May 12th 2020 the Prime Minister of India announced the Atmanirbhar Bharat Abhiyan – a mission to make India self reliant and respond to the economic challenges posed by the pandemic. The prime minister also announced an immediate financial package worth rupees 20 Lakh crore amounting to 10% of India’s GDP. In the days that followed the Finance Minister and the Minister of State (Finance) released the details of the package in five tranches.  Experts and various citizen groups called the package yet another joomla and many estimated the actual expenses to be borne by the government  to be around 2 lakh crore or less (10 % of the actual package and 1% of the total GDP).  The 20 Lakh package includes measures adopted by reserve bank to increase liquidity, loans by banks and NBFCs (a total of more 12 lakh crore) and re announcement or repurposing of budgetary allocations. At a structural level, on the one hand states are being asked to dilute the labour laws while on the other hand sectors like mineral mining and coal mining are being privatized – posing existential threat to both the people and environment of this country. By shifting the onus of increasing cash flow in economy to the banks, the banks have also been put at risk. Contrary to what has been claimed India’s package is pale in comparisons to many other developed and developing countries. In this article Mr. Thomas Franco, former Secretary of All India bankers union closely analyses each scheme/proposal announced by the finance ministry and where does the money for each actually come from. The article also compares India’s package with that of US and Thailand.

We thank our friends in Centre for Financial Accountability, Delhi to republish his analysis originally written for their Newsletter, Finance Matters, and available at their website here:

Minister gave a press statement and a document of 27 pages has been released. Everybody
is hoping now for the other parts. When the economy is in crisis everyone hoped
for relief package for creating demand and feeding the poor. Packages as done
in other countries. That is the oxygen needed but the patient has been told
that he has to wait and if he survives, he can get paracetamol. Let’s analyse
the package announced in detail.

begins with a call for Self-Reliant India Movement on 5 pillars. Economy, Infrastructure,
System, Vibrant Demography and Demand. It mentions Rs.20 lakh Cr package which
is 10% of GDP but not even 1% is coming from government. 

document has recalled the PM Garib Kalyan Package 1. A quick assessment:

  • Insurance cover of Rs.50 Lakh per health worker– the
    policy is only for 3 months. What happens after that? Not known.
  • 20 Crore women Jandhan account holders to get Rs.500
    PM for 3 months – Now she claims 41 crore accounts credited with Rs.52000
    Crores. Even if we add 3 crore senior citizens and widows plus 3.7 crore
    farmers it does not tally. 
  • 80 Crore poor will get 5 kg wheat/rice and 1 kg pulses–
    Now she says 6.5 crore card holders have been given 71000 tons. If there are 4
    persons per household on an average it has covered only 26 crore people.
  • Rs.18000 Cr refunded to 14 Lakh Income tax holders. –
    Are they the poor?
  • Sanctioned Rs.15000 Cr for emergency health package –
    Is it not too little?

the document talks about liquidity released by RBI which is not government
money. In fact banks have deposited more than Rs 8 lakh Cr with RBI. The
biggest announcement is Rs.3 lakh Cr collateral free loans to micro and small
industries, Rs.20000 Cr subordinate debt and Rs.50000 Cr equity to MSMEs. These
are all loans which have to be paid with interest to banks. That is depositor’s
money. By announcing that it is fully guaranteed by government (which is not
true), the Finance Minister has given the feeling that it need not be repaid.
This too is going to cover only 45 lakh out of more than 6 Cr units.

only relief is Rs.2500 Cr for EPF contribution for workers for 3 months. EPF
contribution reduction of Rs.6750 Cr is not provided by government. It is taken
from employees for the employer.

Cr liquidity for NBFC/HCs/MFIs and Rs.90000 Cr liquidity to DISCOMs are again
loans with interest which will be passed on to consumers or states.

Cr liquidity through TDS/TCS reductions is only future revenue foregone.

MSME Credit Guarantee fee for Rs.4000 Cr to be borne by the government to the stressed
accounts. That is the only amount government is spending.

danger is revision of MSME classification norms.

For micro
enterprises the existing norms of investment below Rs.25 lakhs for
manufacturing and below Rs.10 lakhs for services has been changed to investment
below Rs.1 Cr and turnover below Rs.5 Cr. Now services are going to be favoured
and manufacturing will be neglected. Can we call these as really micro

happens to village industries which are classified as industries with
investment up to Rs.1 lakh? No announcement.

industries is changed from less than Rs.5 Cr investment to Rs.10 Cr and for medium
enterprises it is increased from Rs 10 Cr to Rs.20 Cr.

again favouring the rich and better off neglecting the real artisans, cottage
industries, village industries and traders who will get no loan even.

total as per my calculation, taking into account the price of wheat/rice for 71000
tons at wholesale price the government has spent Rs.69142 Cr so far and it is
going to spend another Rs.6500 Cr plus some grains and cash around Rs.30000 Cr.
So where is the relief for poor? For farmers? For migrant labourers? For farm
workers? For unemployed? Almost 19 lakh Cr is missing from PMs announcement.

The loans announced also will have strings. Banks can’t lend
depositors money without proper assessment. So now they will give to
customers who have good credit record. They will lend more to NBFCs at
10% interest who in turn will charge 24% interest from MSMEs and many
will fail. Banks can get only 85%/75%/50% of the loan from the Credit
Guarantee Corporation, so they will make a huge loss. Officers will be
charge sheeted. Loans will be written off after 3 years or earlier and
banks will suffer.

us compare this with other countries.

has announced $3 trillion as relief without taking into account the package of
the Federal Reserve. Which is 13% of it’s GDP. Most of Europe  has announced similar percentage and some of
them more.

which is nearer to us has announced similar package though they have only 3000
patients as on 3rd May.

of them are:

  • Monetary: Soft loan at 2% for 2 years against normal
    rate of 15%.
  • Moratorium, reduced Interest and extended repayment
    for existing loans.
  • Emergency loan at 0.1% Interest for 2 and half years.
  • Special Loans at 0.35%.
  • Special Credit to SMEs @3% Interest.
  • Fiscal: Reduction of tax from 3% to 1.5 for 6 months.
  • Tax deduction to MSMEs equal to 3 times of salary paid
    to employees.
  • Reduction in health insurance premium.
  • Economic: Cash to informal workers for 3 months @ 5000
    Baht per month.
  • UE allowance equal to 50% of normal salary.
  • Training on skill development.
  • The Economic package is 10 % of GDP.

Many other countries have done that. New York state in US is
distributing $25 million fruits and vegetables purchased from small
farmers to the needy through food banks.

Where are we? We are giving light to the world as PM claims.

Atma Nirbhar Bharat – Part II

The Finance Minister has released the second part of Self Reliant
India. We don’t know whether there are anymore parts. Releasing in parts
gives her lime light and deviation from the increasing Corona status.

She says 3 crore farmers with agriculture loan of Rs.4.23 Lakh Cr
have availed moratorium. We will have to wait and see for RBI Reports.
They have to pay additional interest which the government is not willing
to bear.

Interest subvention and prompt repayment incentive on crop loans
extended upto 31st May 2020. This scheme is there for a decade and
extended periodically. Nothing new. Infact this government removed
interest subvention and PRI to agri gold loans in September last year
affecting crores of people. This should be revised.

25 Lakh KCCs issued. This is routine for banks and some banks have
introduced KCC Gold loans. So it is only renaming of gold loans.

Lakh loans of RS.86600 Cr approved in agriculture between 1/3/2020 and
30/04/2020 – Can we believe? This happened during lock down? May be some
loans were given before March 24. As per RBI data as on 24th April 2020
– food credit came down by 1430 Cr and non food credit came down by
67910 Cr.

Refinancing by RBI, RIDF, WC to states are routine work of NABARD. What is new?

Central government released RS.11002 Cr to states under SDRF. This belongs to states. The demand is 10 times of this by states.

7200 new SHGS for urban poor have been formed starting with March
2020- Can you believe that during lock down meetings took place to form

MGNREGA scheme was already announced. But till new dues of previous financial year have not been disbursed.

Labour codes are an assault on labour. Acts are mandatory to be
complied. If not one can go to court seeking justice. Codes are only
guidelines. No legal protection is available. Even after passing code on
wages months back the government has not fixed minimum wage and the
newly invented Floor Wage. It is not waiting for parliament as Finance
Minister said. When it will come? Even God does not know.

Again talks about previous day announcement of 3 Lakh Cr loan to
MSME. Till now RBI has not issued instructions. There is confusion about
revised classification. It has not been notified. Entrepreneurs are
still waiting.

Free food grain for 3 months was already announced. What happens after May?

National portability of ration cards was announced by Mr. Ram Vilas Paswan months ago. 

Affordable rental housing complexes for migrant workers/urban poor is
welcome. During the interview Finance Minister said this will be under
PPP. So nothing from government. Rich will construct with bank loan and
rent will be on premium rate.

Interest subvention of 2 % for
SISHU Mudra Loans (less than Rs. 50000) is a welcome step. Anyway, most
of them are already NPA and has to be written off.

Working capital of Rs.10000 for street vendors is a welcome scheme.
Question is when will banks give these loans to 50 lakh street vendors?
Banks don’t have man power. There should have been an announcement for
converting all business correspondents in customer service points as
regular employees and CSPs as micro branches. Now we have to wait and
see what happens and when? Instead of loan this Rs.5000 Cr should be
given free to them by the government. It’s pittance. Credit Linked
Subsidy scheme for affordable housing already exists. What is new?

Compensatory Afforestation Management is already announced in the budget. 

Rs.30000 Cr additional emergency working capital as refinance to
co-operatives and RRBs is also already in the scheme. In the budget
speech Finance Minister announced that farm loans will be increased to
Rs.15 lakh crores. This is part of it. 

Rs.2 lakh Cr concessional credit through KCC is also part of the
above announcement. The Agri loans outstanding as on March is Rs.1157795
Cr. So more than 3 lakh Cr has to be given to achieve the target.

whatever is announced is only the old wine in the old bottle. Not even
new bottle except the traders loan which actually should be given free.

Bankers and banks will suffer a lot if additional manpower is not
provided. Otherwise misuse will take place. I recall a real incident.
One young Probationary Officer was given instruction to give 25 loans
under Mudra within a month. (All branch managers were asked) He gave
loan to his barber, nearby tea stall, man ironing clothes etc. He could
not reach the target. So he gave a loan to his father, mother, father in
law etc. He was charge sheeted and dismissed from the bank when someone
informed it to the controllers.

This can happen again to many if adequate man power is not there and
systems are not followed. Finance Minister is doing a great job without
spending anything for reviving agriculture.

Aatma Nirbhar Bharat –Part III & IV & V

As part  Part III the Finance Minister announced

  • Rs.1 lakh Cr Agri Infrastructure Fund for farm gate infrastructure for farmers.
  • Rs.10000 Cr scheme for formalization of Micro Food Enterprises.
  • Rs.20000 Cr for fishermen through Pradhan Mantri Matsya Sampada Yojana
  • Setting up Animal Husbandry Infrastructure Development Fund Rs.15000 Cr.
  • Promotion of herbal cultivation Rs.4000 Cr.
  • Bee keeping initiatives Rs.500 Cr
  • From Top to Total Rs.500 Cr

If you go into the details

  • Rs.1 lakh Cr is only a loan facility.
  • Rs.10000 Cr also appears to be a part of budget. (PPP)
  • Rs.20000
    Cr for fishermen is not known unless details are announced. For the ban
    period support to fishermen they have to pay Rs.75 per month and state
    government has to pay Rs.75 pm. Only Rs.75 pm will be borne by centre
    that too for those who are below 60 years.
  • Animal Husbandry Infrastructure fund of Rs.15000 Cr is for private investment in AH. This is too little.
  • Herbal plantation is to be provided Rs.4000 Cr in the next 2 years. How it is Covid Relief?
  • Rs.500 Cr for bee keeping is from budget.
  • Top to Total Rs.500 Cr is for providing 50% subsidy for vegetable processing. 

Other announcements of amendment to essential commodities act,
agriculture marketing reforms and legal frame work for agriculture
produce pricing are all in favour of corporates. Corporate agriculture
in the form of co-op farming is pursued. Most of this are already in the
budget 2020-21 and not new. (agriculture, irrigation and allied
activities was provided Rs.1.60 Lakh Cr)

Rs.103 Lakh Cr for infrastructure in 5 years was announced in the
budget. Out of that minimum Rs.20 Lakh Cr should be spent in this year.
Where is it?

The more dangerous propositions have come though Part IV

  • Fast track investment clearance through Empowered Groups of Secretaries (EGOS).

-This already exists. What is new in promotion of new champion
sectors– such as solar PV manufacturing. This will help Adani a lot.

  • 3376 industrial parks/estates/SEZs in 5 lakh hectares mapped.

-This is to be provided to private corporates.

  • Policy Reforms – Introduction of commercial mining in coal sector. Nearly 50 blocks will be offered immediately.

-This government cancelled all coal auctions. Now it favours
corporates of their choice. The trick is others will not be allowed to
participate in the auction.

  • Coal sector investment of Rs.5000 Cr

-This is part of budget.

  • Mineral Sector– 500 mining blocks to be offered through auction– Remove distinction between captive and non-captive mines. 

-Total privatisation which will exploit nature and destroy forest.

  • Defense Sector – Corporatization of Ordinance Factory Board.
  • FOI limit in defense manufacturing increase from 49% to 74%

-Is this self reliance?

  • Air space and Civil Aviation – Restrictions on Indian airspace will be removed.

-Dangerous for the safety of the country.

  • More world class airports though PPP.

-Before Guwahati Airport was given to Adani we could get tea inside
the airport for Rs.10/-. Now it is Rs.65. This is one example of
privatization.  Kerala has not given Trivandrum Airport.

  • Privatisation of electricity distribution in UTS.

-DISCOMs continue to be favoured. Adani and Tatas favoured.

  • Boosting private sector investment in social infrastructure with revamped Viability Gap Fund (VGF)

-VGF is the biggest loot by corporates. As they will require time to make profit government gives this fund. 

  • Boosting private participation in space- private sector will be allowed to use ISRO facilities.

-India is a leader in space. Now it is going private. Dr. Abdul Kalam will cry in his grave.

-Atomic Energy related reforms.

  • Research reactors in PPP Mode
  • Establish technical facilities in PPP mode.

Privatisation seems to be the only Mantra. The richest 1% will
benefit more.  Reservation policy will die a natural death. Public
sector undertakings will not be given funds and they will be killed like
what has happened to Videsh Sanchar Nigam Ltd, Indian Petro Chemicals
Ltd, Bharat Sanchar Nigam Ltd, Air India, HMT and many others. No labour
laws will apply to these corporates.

If education, health, defense, space, technology- everything is going
to be given to private corporates- Do we need a government? Hand over
parliament to the corporates.

All this is done outside parliament using the pandemic to curtail any opposition. 

Aatma Nirbhar Bharat– Part V

Finally, the Finance Minister has concluded her 5 days show. The
conclusion of the press conference indicates the attitude of the
government. When a question was asked about migrant labourers walking,
she put the entire blame on the congress state governments and without
mentioning name she said Rahul Gandhi, instead of sitting and talking to
the labourers should walk with them carrying the children or
luggage. When another question was asked about labourers paying for
ticket she said she is not aware. For the question on from where money
will come, she replied you should see where it goes and finally agreed
that it will be though borrowing. When she was asked, “Madam, the people
who were appreciating your statements on MSMEs, Farmers are now
questioning after Part IV, including the BMS and Swadeshi Jagran Manch
are questioning privatization of coal, defense etc. What is your reply?
“The reply was “Tik Hai, Thank You” and she walked out.

In Netherland the government has appointed an opposition MP as Health
Minister to handle the situation. Here we keep fighting and accusing.
The Finance Minister blamed that the states have not utilized 86% of the
borrowing limit allowed.

How can they borrow at market rate? How will they repay? States are
asking RBI to permit borrowing at repo rate but that is not allowed.

The welcome announcement is increasing allotment to MGNREGS by
RS.40000 Cr.  The same scheme was once blamed as biggest waste by UPA
government by this government.  

On Health, announcement that one hospital in every district will have
a block for infectious diseases is welcome. This should have been
announced in January when first case was reported and the pandemic was
spreading across the Globe. This would have helped to contain the
spread. One public health lab in every block in the country is a welcome
step. Should be established immediately.

On Education the entire focus of the announcements are to use online
courses, TV channels, community radio and podcasts which cannot be
accessed by majority of the children in the country but help Tata Sky,
Airtel and other service providers.

For banks more difficulty is going to come. Default due to Covid
should not be treated as defaults. So this should apply to all loans in
the banking system which is more than 103 lakh Cr. No insolvency
proceedings for one year for NPAs in MSMEs.

She announced that through an ordinance minimum threshold for
referring cases to IBC will be increased from 1 lakh to 1 Cr rupees
which is totally wrong. IBC circular dated 24th March 2020 has already announced this.

For those who still have faith in public sector which has contributed
a lot for the growth of the country the announcement is shocking.

Private sector will be allowed in all sectors. Even in strategic
sectors their presence will be reduced to 4 PSUs by merging or
privatizing the others which are there.  Surprisingly the MOS was not
translating what FM was stating but using a Hindu note which appeared to
be different at times. For example MOS emphasized on Privatisation,
whereas Finance Minister mentioned merger. Sadly she mentioned
mushrooming of PSEs will not continue whereas this government only keeps
closing down or privatizing and where mushrooming is taking place is
not known.

On funding to state governments she listed out what has been released already and mentioned in earlier parts. 

The new announcement is that states can borrow up to 5% of State
Gross Domestic Product instead of 3%. She was so angry that the states
have not borrowed 86% of their increased limit under ways and means
advances without bothering to know why they haven’t? It’s not a grant.
They have to repay at market rate which can lead to insolvency of the

Now 3.5% of SGDP can be borrowed without any strings. Next 1% will be allowed only if 4 conditions are fulfilled.

  1. Implement one country one ration card
  2. Improve ease of doing business in districts
  3. Reform power distribution
  4. Improve urban local body revenues.

The first needs digitization which some states are finding difficult
and those who don’t have cards are not included as no new registration
takes place. Ease of doing business is to allow corporates to get cheap
land and amenities. Power reforms is to help private DISCOMs and
increase power tariff. Improving urban local body revenues is by taxing
people. All are dangerous. If 3 out of this 4 is completed they can
borrow more 0.5% of SGDP. State will become insolvent soon.

While summarizing the package the Finance Minister stated that the
total is Rs.2097053 Cr out of this if we segregate Rs.801603 Cr is
liquidity provided by RBI by reducing CRR and repo rate. But actually,
banks have deposited Rs.850000 Cr with RBI because they are not able to
lend. Another Rs.870000 Cr is the loan to be given by Banks and
financial institution like NBFCs which borrow at around 11% from bank
and charge up to 24% interest. Many corporates including Reliance have
their own NBFCs and payment banks. Rs.425450 Cr is the amount to be
spent by the government. Even in this Rs.64600 Cr is revenue foregone.
Except Rs.40000 Cr for NAREGA, Rs.2800 for EPF, food grains provided
(The actuals does not match with what was announced). Rs.8100 Cr for VGF
and RS.4000 Cr for insurance guarantee the rest were already part of
the budget announcements.

Till now RBI has not issued any circular regarding the loans.

So when we talk big of 5 trillion economy, 10% of GDP as relief
package and self reliant India which will depend on private and
international corporates we are cheating ourselves. I remember Former
Finance Minister Mr. Arun Jaitley replying to the anchor in a conclave.
When he was asked about reforming and boosting the economy, he showed
his hands towards the international and national Titans of the corporate
world and said “We are waiting for you”. This is before 4 years. Now
the new Finance Minister also is giving out concession after concession
to the corporates and waiting for them to uplift the economy. They will
uplift themselves but not the economy because like the Finance Minister
they also see this only as an opportunity to do what they want.

The biggest challenge is for the banking Sector. The Finance Minister
announced that she will have weekly review with bank chiefs i.e. public
banks. Remember the way she shouted at the Chairman, SBI at Guwahati
and never regretted! With morale of the bank staff so low due to
continuous work under lock down, waiting for wage revision and 5 day
week for 3 years and drastic reduction of staff strength, stoppage of
annual transfers, crisis is brewing.

That will be also used as an opportunity for privatisation. 

Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.