In a recent broadcast, NDTV India interviewed tour operators, guides and restaurant owners about the Rs 6.28 lakh crore stimulus package for distressed sectors announced by finance minister Nirmala Sitharaman, which is mostly in the form of bank credit guarantees (there is a special focus this time on the tourism ecosystem, a big employment provider).Almost all people that were interviewed said that they wouldn’t borrow from banks because their financial condition is very weak and there is no guarantee of tourist inflows in the near future.The Agra tourism ecosystem has collapsed, with guides dipping into savings and borrowing from friends and relatives. Tourist operators and restaurant owners said the guarantee of bank credit had no meaning because it is just debt, which cannot be repaid without income support. A tour operator said there was no point in announcing five lakh gratis visas if visitors won’t travel to India until the pandemic is contained. The vaccination strategy is a mess, just 4% of the population is covered, and critical mass is far away.Tourism and related trade, transport and restaurants provide a large chunk of employment and the revival of this sector depends on quick mass vaccination. Vaccination of a critical mass of people would be the biggest psychological stimulus. In the meanwhile, the government needs to provide income support to the vulnerable.CMIE data shows that 97% of workers have suffered income losses ― both nominal and real ― after the second wave, and youth unemployment was at 28% in April and May. Credit guarantees cannot act as a stimulus after the devastation and excessive fear caused by the second wave.Also read: A Year Into the Pandemic, the Statistical Vacuum on Indian Labour Hasn’t Been FilledThe actual additional budgetary allocation by the Union in this fiscal is only about Rs 50,000 crore, consisting of extra free foodgrains for the poor until November, and increased fertiliser subsidy, which was already announced. The rest of the so-called package of Rs 6.28 lakh crore is in the form of bank credit guaranteed by the government in sectors like health, tourism, MSMEs etc.Direct income support rather than supply-side measures is critical after the second wave because savings were eroded heavily by the first wave. Even last year, most economists argued for direct income support to the poor and lower middle class to boost demand. But the Union government’s package of Rs 20 lakh crore mostly consisted of liquidity support by the RBI and various forms of credit guarantees and support to domestic manufacturing under the Atmanirbharta scheme. These were all supply-side measures whose effect will be felt later.For instance, RBI’s liquidity easing since last year is yet to translate into any significant increase in overall bank credit to industry. Both gross fixed capital formation and private consumption expenditure dropped in 2020-21, possibly because of an excessive focus on supply side measures. A direct income support scheme would have helped more by boosting private consumption expenditure.The government is making the same mistake after the second wave. Even industry leader Uday Kotak, president of the CII, has argued for direct income support for the poor and vulnerable to boost demand in the economy. Normally, industrialists only ask for supply side sops like corporate tax cuts, labour reforms and lower capital costs but now, they realise that there can’t be growth without demand. This simple logic eludes the Modi government, which insists on providing more bank credit to already weak and bankrupted small and informal businesses.Also read: How India’s Financial Inclusion Infrastructure Failed During the PandemicThe structural setback to income and demand caused these past few years will have implications. It has resulted in 230 million slipping back to below poverty as per a study by the Azim Premji Institute. Besides this, a PEW research survey also confirms that India accounts for 57% of the people globally who have slipped from middle income to lower income category. Given this, the Union may have to rework its road map for achieving $5 trillion economy.Last year, as the economy opened up fully around Diwali, some pent-up demand was seen as the upper middle class had saved during the lockdown. It may not happen this year due to insecurity, as the RBI consumer confidence survey shows. Modi’s promise of a $5 trillion economy by March 2025 may not materialise before 2028. The sinews of the broader economy had been weakened even before the pandemic arrived, and mismanagement of the second wave has caused more damage.It is becoming increasingly clear that Prime Minister Narendra Modi will now preside over the worst stagnation in income, savings, investment and employment of his decade-long tenure. His economic legacy is a near-total write-off, a failure of Tughlaqian proportions.
