Finance Minister Nirmala Sitharaman, even with her new look – she has virtually greyed handling the finance portfolio — has never been known for anything out of the box, least of all for a jugad response to problems. But her stimulus package No.3, which she claims takes the total size of the Atmanirbhar stimulus to Rs 30 lakh crore, offers much scope for the jugad practitioners, although the upside potential of the package itself as a driver of economic growth is limited.

For instance, the Rs 6,000 crore component of the package meant to create new employment, under which a two-year subsidy is provided as incentive for units to employ more people, is highly liable to be abused. The scheme offers a two-year subsidy to firms that hire employees between September 30, 2020 and June 30, 2021 and the government will pay both the employee’s contribution towards EPFO, inclusive of both the employee contribution of 12 percent of basic salary as well as an equal contribution from the employers in firms with less than 1,000 staff. For firms employing over 1,000, the government will pay only the employee’s contribution while the companies are expected to contribute 12 percent as before. The subsidy will be only for employees with monthly wages up to Rs 15,000. However, to avail the scheme, companies with less than 50 employees will have to hire two new staff, while firms with headcount above 50 will need to create five new jobs.

There are enough loopholes in the scheme for company managements to manipulate their records to claim the benefit, with the result that a lot of fake new jobs may be created. The benefit will also be available to companies re-appointing those who had lost jobs during the lockdown, when thousands of units downed their shutters.

The finance minister sought to provide further boost to rural employment by allocating an additional outlay of Rs 10,000 crore for the PM Garib Kalyan Rozgar Yojana, but here again the scheme’s viability as a driver of gainful and sustainable employment over the long term is suspect.

Overall, the Diwali ‘damaka’ that Nirmala Sitharaman intended to create proved to be damp cracker, limiting the impact. It is perhaps no coincidence that even as the minister was making the announcement, the stock markets gave a lukewarm response, apparently as the market was not impressed with the quality of stimulus. In fact, the BSE’s 30-share Sensex snapped an eight-session winning streak, and dropped 237 points to 43,317 points.

Stimulus 3 did provide relief, but only in pockets and lacked the vital animal spirit that analysts have been crying hoarse about all this while. Analysts have expressed themselves almost unanimously that the finance minister’s latest package was not up to the mark. They have long been calling for ‘out-of-the-box’ responses to the unprecedented crisis in the economy as well as the life of the nation and its people.

The finance minister’s optimism appeared to be out of sync with the report of the Reserve Bank of India, which declared that India has technically entered the recession phase with a likely contraction in its GDP during the July-September period fulfilling the condition of two successive quarterly GDP contraction.

“There is a grave risk of generalization of price pressures, unanchoring of inflation expectations feeding into a loss of credibility in policy interventions,” the RBI bulletin said. It also highlighted risks to global growth from a second wave of coronavirus infections.

“Lurking around the corner is the third major risk — stress intensifying among households and corporations that has been delayed but not mitigated, and could spill over into the financial sector,” RBI said, concluding “We live in challenging times.”

While the package offers limited relief in some sectors, such as real estate by way of tax relief for housing units, there is clear need for steps to boost demand in the economy. Despite signs of looking up, demand continues to languish and the technical declaration of recession will lead to further squeeze on consumer spending. (IPA Service)