WHY THE SOPS ANNOUNCED BY NIRMALA SEETHARAMAN ARE A FARCE - SANJAY SINGHVI
Featured

27 March 2020

 

We are just on the second day of a 21 day enforced lockdown declared by the Government. The Finance Minister has just announced a relief package of Rs. 1.7 lakh crores. At the current rate of exchange this package amounts to $22.7 billion. Compare this with the package of over $2 trillion announced by the USA, or about $ 200 billion announced by UK or even the $ 45 billion announced by Italy (which has an economy much smaller than India).  Even the Canadian Government (where the population is 1% of India and less than most major Indian cities) is rolling out $ 27 billion in subsidies and $55 billion in credit to help those affected by COVID 19.  Keep in mind that India will have many more people affected by the lockdown, firstly because of its vastly larger population and also because there are a far greater proportion of poor who are in need of relief measures. This clearly shows that the relief measures being announced are woefully inadequate.

              Actually even the figure of 1.7 lakh crores is misleading. This includes the amount of Rs.31,000 crores which is already in the fund for benefit of construction workers which the State Governments have been asked to spend for construction workers. This is not a new benefit for construction workers but money which was already provisioned for their benefit.

It also includes Rs. 20 increase in the daily wage of MGNREGA workers. This will only be available to them when they can do the work of MGNREGA, which seems unlikely till the lockdown lasts. There are about 27 crores of MGNREGA workers[i]. Each worker is to benefit by Rs. 2000 in one year (given that he gets the full 100 days of work, which never happens). So 54,000 crores is for the MGNREGA workers. So half of the package – 85,000 crores (31000 crores for construction workers and 54000 crores for MGNREGA workers) is no contribution by the Government at all. In any case, MGNREGA workers were due for a rise in wages, even otherwise. Their rate of wages is among the lowest in the country today.

About 20 crore women who have Jan Dhan accounts will get Rs. 500 per month for 3 months. This amount is too little to provide any real relief. The free  LPG connections to the around 4 crores beneficiaries of the Ujjwala Scheme gives each a benefit of about Rs. 2400 (deferred over about 3 months taking one cylinder per month). About 3 crores senior citizens and widows are to be given Rs. 1000 each. Again not a great amount. Besides this BPL households will get each month 5 Kgs of rice or wheat and iKg of dal free. Rural farmers are to get Rs. 2000 each as direct transfers to their accounts in the first week of April. Besides this the PF contribution for workers (both employers and employees shares) for MSMEs will be paid by the Government for the next three months. Take the best case scenario of a farmer who is a woman having a Jan Dhan account and also a widow. She would then get Rs. 3500 and three free gas cylinders for three months and 5 Kgs of rice or wheat and Ikg of pulse. She would get a further Rs 500 per month and another 5 Kg of rice/wheat and 1Kg of pulses for the next two months. This is too meagre an amount to provide any real relief in todays times. The monthly estimate by the 7th Pay commission for a worker’s family of two parents and two children is 42.75 Kgs of Rice/Wheat and 7.2 Kgs of pulses (dals)[ii]. The cost of just food and cloth for such a family was calculated as Rs. 9300 per month as on 1st January 2016. Today, this would translate to well over Rs. 10000. When you declare a total lockdown, it must be assumed that all opportunities for earning are stopped. People will have to depend solely on savings and aid.

 

The Indian economy before the lockdown was none too healthy. Recent figures had shown that unemployment was at the highest in 45 years[iii]. The GDP growth rate has already fallen to about 4.5% in the third quarter of the current financial year. The stock markets were in a crash mode for almost a year, banks have been turning belly up, the growth in the manufacturing sector was down to around 0.5% in the third quarter. All this shows the ailing health of the Indian economy. The signs were clearly there for the Government or anybody else who wanted to, to read.

              In times of recession, it is not the large enterprises which suffer the most. It is the small and medium enterprises which have to bear the brunt, eventually being eaten by the bigger fish. Even more it is the workers in these enterprises who suffer the most. The capitalist can make up his losses just by selling the assets like land, which have appreciated so greatly that he is often left with more than when he started. For the workers – especially the workers in the smaller enterprises and informal sectors, the contract workers, casual workers, self-employed workers, small sellers, small farmers, there is nothing to fall back upon. If the economy is to shut down for a prolonged period of time, it is these workers and farmers who have to be provided for.

            What could be done for such workers and farmers? Let us take the workers first. The Government has to ensure that they will be paid their wages for the full period of the lockdown with assurances that their jobs will be retained. How can this be ensured? In the UK, their Chancellor, Rishi Sunak has announced that the Government would pay 80% of wages to employees (till £ 2500 per month) who were not able to work due to COVID 19 in an attempt to see that their jobs are retained. This cover will be backdated to start fr[iv]om the beginning of March and will last for three months and may be extended if necessary, it was announced. Other measures include help to those unable to pay their rents. After this announcement by the Chancellor two further schemes to help business were announced on Tuesday: a new interest-free Business Interruption Loan Scheme for small and medium-sized firms and a Bank of England finance option for bigger businesses. A support package for self-employed people is also expected soon as already announced by the Government.

The USA already has a robust system of unemployment benefits based on what you have earned in the past 12 months and subject to a minimum of 50% of the average. This is to be extended to those who are unemployed due to COVID 19. At the time of writing this the US Senate has just passed a new bill for $1.7 trillion. This includes $1200 direct aid to all individuals who earn below $75000 per year, $250 billion for further unemployment aid including for self-employed and $300 billion for the airlines industry.

Even in Pakistan, Imran Khan yesterday announced a package of Rs. 1.2 lakh crores to help people affected by COVID-19. This is for a population of 20 crores – less than a sixth of India’s population.

About other countries, the Business Standard Article of 20th March[1] had this to say :

  • Paid reductions in working time/partial unemployment benefits, which compensate workers for hours not worked, are being expanded or simplified in France, Germany, Italy and the Netherlands
  • The Chinese government has directed employers to not terminate contract of migrant workers in case of illness or containment measures
  • Unemployment insurance benefits have been expanded in several countries, including the United States. In the Philippines, the Social Security Scheme is prepared to give unemployment benefits for up to 60,000 job losses
  • Countries like Italy and Japan are giving financial support and simpler procedures for allowing teleworking
  • Provisions for paid sick leave for self-employed in Ireland, Singapore and South Korea

Source: ILO

In the face of such measures the relief being provided to workers and poor farmers in India is only illusory and a farce! We have to demand.  better and more meaningful support. Such measures can also be easily taken. For instance, India may not offer 80% of the wages to workers, but it can certainly say a lesser percentage, say 50%! It not that, it could offer enterprises which keep their workers and give them full pay a tax sop or a moratorium on taxes as an incentive to keeping the workers. It may not be able to give full relief to the farmers but it can certainly set up a Minimum Support Price and can ensure that it itself buys all farm produce at the minimum support price. This is especially important when the Rabi crop is in the process of harvest and is expected to be a bumper crop. This will, of course lead to the question of stocking such produce but that is not a real problem. The FCI godowns today have more stocks than ever before. An article in the Economic Times of 26th March 2020 based on the statement of the Food Minister, Ram Vilas Paswan, says that though the norm is to store 21 million tonnes of food grains we now have over 58.49 million tonnes (30,97 million tonnes of wheat and 27.52 million tonnes of Rice)[2]. There is nothing to stop the Government from directly sending all this food grain to affected people. It has already agreed to give them meagre amounts like 5 Kgs per month for 16 crore families it only comes to less than 1 million tonnes per month. Why is the Government hoarding food grains at a time like this?

Where is the money for all this to come from? Barclay’s has estimated that the loss to the Indian economy by just the three week lockdown is of the region of $120 billion. We need not spend as large amounts as the US or European. However, we cannot make worries about fiscal discipline stop us from providing needed aid at a time like this. India is today sitting on the largest foreign exchange reserves in history. India has foreign exchange assets of $ 447.3 billion in total reserves of $481.9[v]. Even if the Government were to increase its aid by ten times, this would not even be half of the foreign exchange reserve. Such an amount could give every worker of the 47 crore workers in our country the minimum wage of Rs. 10000 per month for Three months. Even if not this source, in such a crisis any source could be used. Fiscal discipline cannot guide spending in such a time. Germany’s Angela Merkel has said that they will spend whatever is necessary. Same with other countries. We can capitalise (print the money if necessary though such measures may not become necessary) at such a time of crisis. We can worry about inflation later.

Com Sanjay Singhvi is the General Secretary of TUCI

 

[i] From the MGNREGA website see http://mnregaweb4.nic.in/netnrega/all_lvl_details_dashboard_new.aspx

[ii] See page 65 of the Report of the Seventh Central Pay Commission published here by the Finance Ministry https://www.finmin.nic.in/sites/default/files/7cpc_report_eng.pdf?download=1

[iii] Though the Statistics Secretary, Pravin Srivastava said that the figures were based on a new matrix and new design when the report was released in May 2019, he would not deny that unemployment was at a 45 year high. In any case the Labour Force Participation Rate, which is closely allied confirms that unemployment was at the peak for the past fifty years.

[iv] See the BBC page here for more details https://www.bbc.com/news/business-51982005?xtor=AL-72-%5Bpartner%5D-%5Byahoo.north.america%5D-%5Blink%5D-%5Bnews%5D-%5Bbizdev%5D-%5Bisapi%5D

[v] See https://www.business-standard.com/article/economy-policy/india-to-offer-unemployment-benefits-to-workers-affected-by-coronavirus-120031901409_1.html

[vi] See https://in.finance.yahoo.com/news/enough-foodgrains-stock-fci-govt-073916599.html

[vii] According to the Reserve Bank’s weekly supplement of 13th March 2020. See https://m.rbi.org.in/Scripts/BS_ViewWssExtractdetails.aspx?id=49546

The Communist movement in India has a history of almost a century after the salvos of October Revolution in Russia brought Marxism-Leninism to the people of India who were engaged in the national liberation struggle against the British colonialists. It is a complex and chequered history.