The Republican economic relief package
The Republicans are out with their draft rescue plan. This will be discussed with Senate Democrats; hopefully, approved and sent to Trump over the next few days. So, how did they identify beneficiaries for the direct cash transfer plan which we discussed yesterday? Anyone earning below $75,000 in 2018 would get between $600 to $1200 – with those earning less getting lower benefits. Those who were below the tax threshold but had $2500 in qualifying income would get $600. Those between $75,000 to $ 99,000 will get $1200 and there won’t be any benefits paid to those earning an income beyond 99,000. An extra $500 would be provided for each child with no upper limit.
Simply put, the senate has applied the logic of a fixed percentage of income to arrive at the quantum of benefits. The other elements of relief package include bridge loans for small businesses, a $208 billion package for industries most hit by pandemic (including a $58 billion for airlines) and tax cuts for large corporates. The total package could be anywhere between $ 1 -1.5 trillion.
So, what might an India fiscal relief or stimulus package look like?
Broadly, it could have the following contours:
- Tax breaks
- 6 months GST holiday for small businesses (annual turnover of Rs 75 crs)
- Extension of tax filing deadline to Dec 2020 and waiving tax penalties till then
- Bridge loans up to Rs. 10 crs to small businesses through Mudra and up to Rs. 1000 crs for industries impacted by the pandemic (airlines, hospitality, auto, tourism)
- Provision for rolling over loans for 6 months across sectors and a 3-month window for individual borrowers to skip home and auto loan payments
- Direct benefits transfer
- Rs. 6000 cash transfer to the 36 crores Jandhan accounts
- Rs. 10,000 cash transfer to the 3 crores who file income tax with annual income below Rs. 5 Lacs
- Fiscal stimulus
- Bailout package of Rs. 30,000 Crs set aside for industries who are most hit by pandemic
- Rs. 50,000 crs on medical supplies, medicines and other public health resources to contain the pandemic
A few other points need attention. Oil at sub $30 a barrel is a huge opportunity for India. This could mean a Rs. 2.5 lac crores reduction in import burden. Some of it won’t come through since the oil demand will be lower as the economy contracts. But Rs. 1-1.5 lac crores of oil windfall can still be expected which should be used to fund the fiscal stimulus. It is also time for us to build strategic oil reserves using the ONGC balance sheet. It will come in handy in future.
This package could see us through till July ’20. Hopefully by then, we would have come through the other side of this crisis. The tax receipts shortfall (likely 10 per cent) might be made up somewhat if the economy goes in overdrive once things are back to normal. Disinvestment plans for the year (in excess of Rs 2 lac crores) will have to be shelved. A 2-3 per cent GDP growth will be an optimistic scenario for the year.
Rough estimates of the above package would about Rs.8- 10 lac crores. That’s 4-5 per cent of our GDP. The Republican relief package of $1 trillion and packages announced by other countries are also in the ballpark of 4-5 per cent. We might not announce this large a package immediately, but we will have to get there eventually. We should count ourselves lucky if we come in below 5% on fiscal deficit for FY 21.
No matter which way you look, this will be a very tough year.
Janata curfew day
PM Modi urged the nation to observe janata curfew on March 22 where we all stay indoors between 7 Am – 9 PM (with some occasional clapping in between). This would be a ‘dry run’ in case we have to enforce a complete shutdown. I’m not sure if a single day shutdown would give us a taste of what a prolonged shutdown could mean. In any case, Indians have some experience of janata curfew over the years whenever we’ve had solar eclipse. We will take this in our stride.
However, if we truly want to learn what a prolonged complete shutdown feels like, help isn’t far away. There’s a union territory that can teach us a thing or two on how to live through one.