India’s COVID19 Financial Package: Rehashed Existing Programmes, Little New Spending
Mumbai/Jaipur: India’s financial package to help its poorest citizens tide over the COVID-19 lockdown underestimates the scale of the challenge and will fall short, according to experts and analysis of government data by Indiaspend.
On March 26, 2020, the finance ministry said it had planned a financial package worth Rs 1.7 lakh crore ($22 billion), under the Pradhan Mantri Garib Kalyan Yojana, including distribution of extra foodgrains, direct cash benefits transfer to women, farmers and construction workers, insurance for health workers and benefits for formal sector workers. Several benefits do not make for an actual increase in funding, while some are a reiteration of existing schemes, our analysis finds.
Although transfer of more food and the cash benefits will help the poor, several benefits announced such as the increase in wages under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is not an actual increase--state governments already pay higher wages than the “enhanced” wages announced. Some others, such as allowing employees to withdraw 75% of their provident fund (PF) amount or an amount equivalent to three months' wages does not provide additional funding as this money is not the government's but the employees and the only concession is allowing a withdrawal of their own money.
“The package is wide-ranging in scope but falls short of what is needed to support the poor and to prevent a deepening of the ongoing economic slowdown,” said a March 26, 2020 press note from 635 economists, academics and students. “The FM’s announcement of Rs 1.7 lakh crore, is less than half of the Rs 3.75 lakh crore required to fulfil the minimal emergency measures,” they wrote, calculating the amount needed on the basis of a requirement of a one-time transfer of Rs 7,000 for poor households.
The government’s announcement also lacked details on how the programmes would be implemented given the lockdown and need for social distancing, the note added.
"The announcements for cash transfers appear to be relatively modest at this stage, and we expect the impact of social distancing and the lockdown to restrict GDP [gross domestic product] growth to 2.4% in the fourth quarter of the financial year, 2019-2020 and to 0.5% in the first quarter of 2020-2021,” said Aditi Nayar, the principal economist at ICRA, a credit rating agency, in a statement on Twitter, welcoming the increases in foodgrain provision and advance payments of farmers benefits and pensions.
This package comes three days after Prime Minister Narendra Modi announced a 21-day lockdown of the entire country, with all non-essential businesses shutting down, no domestic trains or flights, limited public transport and restricted movement of people outside their homes.
This step was taken to avoid the spread of COVID-19, which has turned into a pandemic, claiming more than 24,000 lives globally and affecting more than 530,000, according to Johns Hopkins Coronavirus Resource Center (9.30 a.m. on March 27). In India, the disease has claimed 17 lives and infected at least 724 (as of 9.15 a.m, March 27, 2020), according to Coronavirus Monitor, a HealthCheck database.
There have been numerous reports of stranded, jobless migrant labourers unable to get home since public transport is shut, food insecurity and loss of income, especially for those working in the informal sector.
Financial package does not represent additional funding
The Rs 1.7 lakh crore package does not entail the government allocating additional funding for every provision under the PMGKY, according to an IndiaSpend analysis.
For instance, the benefit to formal sector workers from the Employees Provident Fund Scheme will use the employees' own money to help them. The government said it would allow employees who have a provident fund account to withdraw 75% of the amount or an amount equivalent to three months' wages. Usually, workers can withdraw 100% of the employees' share of the PF money if a factory has been locked or closed down for two months and 75% if they have been unemployed for one month.
This is not a real relief to the workers because they have to borrow money from their own social security fund. Here, the government is encouraging workers to be myopic in taking care of their short-term needs rather than providing them with direct relief; further the EPF subsidy will cover fewer establishments and at best a partial measure; over all, the workers on both the organised and unorganised sector will not derive much comfort with the relief package, K R Shyam Sundar, professor at the Xavier School of Management, Jamshedpur, told IndiaSpend.
The government has further said it would pay both the employees' and the employers' PF share (24% of the basic salary) for three months. But this applies to only companies that have fewer than 100 employees of whom 90% earn below Rs 15,000. This will cover 16% of all PF account holders or 1.6% of India’s workforce, reported the Business Standard on March 27, 2020.
Programmes Announced
| Programmes Announced | |
|---|---|
| Benefit | Findings |
| Provident Fund Withdrawals | No additional spending. EPFO rules already allow for withdrawal of up to 75% wages after factory-closure and up to 100% if unemployed for a month. |
| Provident Fund Payments | Covers only 16% of PF account holders |
| MGNREGS Wage Increase | Revised wage lower than average wage being paid by states. |
| Foodgrain benefits | No implementation roadmap given the lockdown |
| Free cooking gas cylinders | No implementation roadmap given the lockdown |
| District Mineral Foundation | No additional spending. Funds to help miners and mining-affected communities being diverted. |
| Cash transfer to Women with Jan Dhan Accounts | Rs 500 given to every woman but the amount is too low to run a household, experts say. |
| Cash transfer to farmers under the PM Kisan Nidhi | No additional spending. Payments are only being advanced. |
| Assistance to construction workers | State governments will utilise Rs 31,000 crore of the construction welfare fund to support 35 million construction sector workers. Includes only registered workers and not every worker is registered. |
| Cash transfer to the disabled | Unclear if benefits are in addition to existing cash transfers |
| Cash transfer to widows | Unclear if benefits are in addition to existing cash transfers |
Based on an IndiaSpend analysis of data for different schemes.
Similarly, the district mineral foundation, a fund from levies on mining companies to help miners and mining-affected communities, is being diverted for COVID-19.
From the DMF, the government will supplement facilities for medical testing, screening and treating patients, as well as activities to prevent the spread of the disease, according to the press release of the finance ministry’s economic package.
Foodgrain benefits, cooking gas will help the poor
The government said it would double the current food entitlement, and also provide 1 kg pulses for three months to the 800 million covered under the Food Security Act (FSA). “The extension of food security and the provision of extra 5 kg of rice and 1 kg of suitable pulse is definitely laudable and universally a good measure to help crores of households,” said Sundar of XLRI.
Under the FSA, priority households (based on ownership of assets) receive 5 kg of grains per person per month while families eligible for the Antyodaya Anna Yojana foodgrain are eligible for 35 kg of subsidised grains.
To make sure this is successful, the group of 635 activists we mentioned above suggested that the government undertake doorstep delivery of ration to avoid overcrowding of distribution centres. In addition, they suggested the government provide two cooked meals for those who do not have the means to use the grains. Some states including Jharkhand, Tamil Nadu and Kerala have already said they would provide cooked food to those who need it.
The government has also said it would provide free cooking gas cylinders for three months to the beneficiaries of the Prime Minister’s Ujjwala Yojana, which began in 2016 and gave women from below-poverty-line households their first cooking gas cylinder. How the distribution of free gas cylinders would be implemented remains to be seen, given that the programme has previously been criticised by the Comptroller and Auditor General for considerable delay in supply of cylinders.
Rs 20 increase in MGNREGA wages
The government said daily wages for a labourer under the MGNREGS would increase from Rs 182 to Rs 202, a Rs 20 increase--roughly the cost of a 200 gm packet of Parle G biscuits--from April 1, 2020. This would amount to an additional Rs 2,000 per household, finance minister Nirmala Sitharaman said.
The programme had over 120 million active workers in 2019-20, eligible for 100 days of work in a year, according to the NREGA portal.
The finance minister’s announcement of providing an average of Rs 2,000 extra per household “is a misrepresentation of facts”, Rajendran Narayanan, a professor at Bengaluru-based Azim Premji University, told IndiaSpend, adding that the announcement is “based on actual paid average wage and not what should be as per laws”. The wage rate is revised annually based on inflation, he said, and even this increase is lower than the average of what the states actually pay MGNREGS workers, he added. The average rate was Rs 238.5 based on the revised wage rates for 35 states and union territories, released on March 24, 2020. Workers would not get any wages while the lockdown lasts so this increase would impact the workers only once work begins, he said.
It is also unclear whether the government would be able to provide work for all those who need it. In the first three quarters of 2019-20, 4.7 million received employment compared to the demand by 5.4 million for jobs, according to a February 2020 analysis of government data by the Observer Research Foundation, a New-Delhi based think-tank.
Further, the programme has regularly delayed payment of wages. As on January 27, 2020, 91% of wages amounting to Rs ₹2,802.59 crore were pending for that month, reported The Hindu Business Line in January 2020, based on government data. About 54% of payments in December 2019, 32% in November 2019 and 29% in October 2019 were pending, the report said.
Women, senior citizens, healthcare workers and farmers
A sum of Rs 2,000 that would have been due to an estimated 145 million farmers under the Pradhan Mantri Kisan Samman Nidhi in July, would be paid early in April--but to about 87 million, the government said. About 98 million farmers are registered with the programme. It is unclear why 11 million farmers were excluded from the list of beneficiaries. Under the programme, which began in 2019, farmers receive an income support of Rs 6,000 a year in three equal installments.
The government has said it would provide insurance of upto Rs 50 lakh to healthcare workers including ASHAs as they would be the ones most exposed to the pandemic.
About 200 million women who have bank accounts under the Jan Dhan Yojana would be given Rs 500 a month as economic assistance for the next three months.
In addition, disabled and widowed women would be given Rs 1,000 over a period of three months. The government already provides Rs 300 per month to widows above the age of 40 years and Rs 500 a month to those over the age of 80, under the Indira Gandhi National Widow Pension Scheme. It is unclear whether the Rs 1,000 will be provided in addition to that amount.
(Jacob and Gagwani are interns, and Khaitan is a writer/editor with IndiaSpend.)
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