This Diwali has been different than any that preceded it, with the backdrop of a global pandemic looming large. The Indian economy has thankfully reflected the festive spirit, with the green shoots of recovery sprouting during October. To capitalize on the growth already taking place and accelerate the growth, the government has announced a stimulus package worth Rs. 2.65 lakh crores geared towards job creation and access to credit and farm support.
This stimulus package represents the third phase of the government’s Atmanirbhar Bharat Abhiyaan, a scheme meant to make India more self-reliant. This stimulus package takes the overall cost of the measures announced by the government since the Covid-19 pandemic hit India to Rs. 30 lakh crore or 15 percent of the GDP. The package includes Rs. 1.45 lakh crores being allocated to provide incentives linked to production in 10 sectors.
A new scheme, the Atmanirbhar Bharat Rozgar Yojana, has also been launched, aiming to generate employment in the formal sector. Under this scheme, the government will provide subsidies to those firms registered with the Employees’ Provident Fund Organisation (EPFO) for all new employees hired between 30 September 2020 and 30 June 2021, whose wages are less than Rs. 15,000 for 2 years. It is important to understand the EPFO scheme first. Under the EPFO scheme, an employee has to pay a certain contribution towards the scheme, and an equal contribution is paid by the employer. The employee gets a lump sum amount including self and employer’s contribution with interest on both, on retirement. As per the rules, in EPF, an employee whose pay is more than Rs. 15,000 a month at the time of joining, is not eligible and is called a non-eligible employee. Employees drawing less than Rs. 15,000 per month have to mandatorily become members of the EPF. The contribution paid by the employer and employee is 12 percent of basic wages plus dearness allowance plus retaining allowance each. This scheme will provide a 12 percent employee EPFO contribution and a 12 percent employer contribution for those firms having less than 1000 employees, and the employee contribution for firms having more than 1000 employees.
The emergency credit line guarantee scheme (ECLGS), which promised collateral-free, fully guaranteed, loans up to Rs. 3 lakh crore, has been extended till March 31 to further spur demand for credit and hence production. Guaranteed credit is also to be provided for 26 identified stressed sectors, further increasing aggregate supply. The government has also targeted to help the housing sector by adding Rs. 18,000 crores to the outlay for an affordable housing program in urban areas. This employs many and also increases the demand for industrial goods. For new homes sold, there will also be an income tax relief for home buyers. As of now if the cost of the house is more than the circle rate (the minimum rate for land and other properties across a city) by more than 10%, the excess amount is taxable. That threshold has been increased to 20% until June 2021. This will be applicable for homes under the price of ₹ 2 crores. The scheme also includes allocation of funds towards agriculture, construction, infrastructure, and rural projects, as well as a ₹900 crore allocation to the Department of Biotechnology to support the development of the COVID-19 vaccine.
The third phase of the government’s Atmanirbhar Bharat scheme has its positives and negatives. The scheme focuses heavily on the supply and production side of the economy to help employ more people. This approach can lead to a positive cycle of production and derived demand which can help employ many. For example, the housing sector has been benefitted from this move, and many housing projects will now be undertaken. This employs many people while providing demand for steel and cement, causing steel and cement firms to start hiring again. This creates a positive cycle of demand and employment, which is exactly what the economy needs. The government is also supporting the worst hit sectors of the economy through this plan.
However, the scheme seems to be too production-oriented, somewhat neglecting the demand side of the economy, which needs a bigger shot in the arm. The employment generated by the new schemes that have been introduced may also not be great. For example, only 65% of the formal workforce will benefit from the Atmanirbhar Bharat Rozgar Yojana according to Finance Minister Nirmala Sitharaman. The Economic Survey of 2018-19, released on 4 July 2019, said: “almost 93%” of the total workforce is “informal”, and since it is the informal sector that has suffered heavily due to the pandemic, these schemes fail to address unemployment to a large extent. The outlay incurred on these schemes are also set to take place over the next 5 years, which means the impact of the policy will not be immediate. The trading group has also been excluded from the list of beneficiaries from the scheme.
While the Atmanirbhar Bharat scheme has set lofty goals and is trying to help India return to being one of the fastest-growing economies in the world, it still has a long way to go. However, the signs are encouraging, and we can only hope that the tree of the new Indian economy grows tall over the burnt stubble of the previous one.