By Dr. Gyan Pathak
With announcement of some new measures to mitigate the destruction caused by the second wave of COVID-19, the size of the assurance for small businesses including the MSMEs and needy households till date has swelled to Rs 6.3 lakh crore, which is indeed an impressive figure, a treat for the ears, but cannot provide the much desired relief and stimulus to the devastated economy.
We must make a distinction between ‘assurance’ and ‘delivery’ of an economic package. One year ago during the first wave of the pandemic the same Finance Minister Nirmala Sitharaman had announced an assurance of economic package of Rs 3 lakh crore as loan to small businesses including MSMEs under Emergency Credit Line Guarantee Scheme (ECLGS). Banks were asked to provide these loans to the needy firms without collateral guarantee from them. The Centre has taken guarantee on their behalf. However, our banks did not give them the loan amount in time. So far, even after a year, Rs2.7 lakh crore have yet been sanctioned on government guarantee to only 1.1 crore borrowers. Only Rs2.1 lakh crore has been disbursed. In a country where there are 6.3 crore MSMEs alone, apart from crores of other businesses in informal sector, sanctioning loans to only 1.1 lakh crore beneficiaries is a pittance.
Let us put the record differently. Presuming that the whole amount was for MSMEs, we come to this conclusion that only about one among six MSMEs could access this finance, and succeeded in getting the loan amount sanctioned. Nevertheless, all of them could not succeed actually getting the loan amount to do their business. Only Rs 2.1 lakh crore was actually disbursed, which means about one third of assured loan guarantee could not be delivered. When the government could not deliver the earlier assured economic package of Rs 3 lakh crore what is the point in announcing increasing its size to 4.5 lakh crore, except the cover up the actual dismal performance, as a result of which millions of small business and MSMEs are dying, and millions of jobs are lost every month?
It shows that there is a huge delay in sanctioning the loan amount, and then there is further delay in actual disbursal of loan amount. It is simply maladministration, the disease that is manifested in corruption. How the loans are sanctioned and to whom? It would be worth knowing at a time when countless small businesses and MSMEs are increasingly complaining that they are running pillar to post to get loans. By increasing the size we can just increase the number of loans sanctioned but what about disbursal? The last year’s record shows that there is about 30 per cent shortfall in actual disbursal of the sanctioned amount.
Moreover, the increase in size is only Rs 1.5 lakh crore, which cannot be given to more than another about only 50 lakh small businesses or MSMEs. Even in this case not more than 25 per cent of the MSMEs could access the collateral free loan is the whole amount is set aside for them. We have also millions of small businesses, if added with number of MSMEs, the amount is too small to make any considerable impact on the economy for its quick revival. It is therefore, heavy reliance of the government on ECLGS, for economic revival and job creation is a mistake. It can neither solve the crisis of demand, nor the crisis of supply.
Government has claimed that these measures would provide relief to a string of COVID-19 hit sectors, especially tourism and small businesses, apart from steps to boost health infrastructure, both in private and public sector. Another Rs 1.1 lakh crore of loans has been lined up, of which Rs 50,000 crore will be provided to the healthcare sector. Rs 60,000 crore loans have been set aside for tourism sector at a maximum 8.25 per cent interest rate. PM Narendra Modi has said, “The measures will help to stimulate economic activities, boost production and export and generate employment.” We cannot technically doubt his statement, but his statement do conceal how little would be the stimulus and benefit to our economy. One of the reason is that several of the announced schemes are intended to be implemented in several years, some of them to spread even up to five years. If we add the usual delay in implementation, we may need to wait years to see the stimulus working.
There have been demands from every sector for economic stimulus package to deal with their distress, especially in the form of tax cuts or other financial support, which is almost absent from the newly announced package. Only loans are to be given to small businesses and individuals from the targeted groups, such as those borrowing from micro-finance institutions who can now get support even if they have been up to 89 days late in settling their dues. Eligibility criteria have thus been delayed, but not eased otherwise. Numerous of the needy would thus fail to get loans because the pandemic and subsequent lockdowns and containment measures have completely broken their business and may have become defaulters by now. The distressed small businesses and industries need more than what the Centre is ready to do.
The present move of the Centre shows that there would not be budgetary support for non-core sectors of the economy. However, the support for the core sector is also not sufficient to boost capital spending and generate much needed demand. More steps are needed to revive the economy by generating demand. Government has still been ignoring the unemployment crisis, especially in urban areas, where there is no employment guarantee scheme such as we have in rural areas.
In any case only loan guarantee is not sufficient for economic revival, at least in near term in such a crisis that we are facing today. The measures announced are beneficial, but they operate too slowly to have any impact in short time. According to an estimate, the additional spend would be only Rs 55,000 to Rs 60,000 crore for this fiscal out of the impressive figure of Rs 6.3 lakh crore. This additional amount is only 0.3 per cent of the GDP. The greater part of the loan amount to be given would be spent on contingencies and liabilities and therefore would not make actual impact on their operational revival. The present announcement is ac-hocism while we need a comprehensive economic revival package. (IPA Service)