By Nageshwar Patnaik in Bhubaneswar, November 17, 2020: Governments worldwide have been announcing stimulus packages to boost the economy in the aftermath of the COVID-19 pandemic outbreak. India is no exception with the Narendra Modi government announcing third tranche of the Atmanirbhar Bharat package last week with a focus on agriculture, exports, housing, infrastructure, manufacturing, the labour market, social welfare and stressed sectors.

With the third tranche, the total stimulus announced by the Modi Government and RBI till date is pegged at Rs 29.87 lakh crore, this works out to a significant 15% of national Gross Domestic Product (GDP). Unveiling the Rs 2.65 lakh crore package last week, Finance Minister Nirmala Sitharaman in particular has made an attempt to boost employment generation in the formal sector. The package is significant as it has focused very much on incentivizing new employment through a slew of measures in both the formal and informal sectors of the economy.

The country does not have labour force data covering the period Q-4, 2019 to Q-2, 2020. However, the Periodic Labour Force Survey of the government (PLFS), released by the Ministry of Statistics and Programme Implementation (MoSPI) 2017–2018 estimates that 77.1% of employment in India is non-regular—either self-employed or casual workers. There is a further 13.7% in regular but unprotected jobs.

When applying 2020 UN population estimate to the above proportion, it suggests that between 364 and 473 million workers are said to have been adversely affected by the long lockdown in the country. Keeping this in mind, the Finance Minister through the third package focused greatly on incentivising new employment through a slew of measures in both the formal and informal sectors of the economy.

The new scheme of ‘Atmanirbhar Bharat Rozgar Yojana’ is a bold move to facilitate new employment opportunities and under the maiden scheme, new employees under the Employees’ Provident Fund Organisation (EPFO)-registered organisations will enjoy benefits, including subsidy support by way of EPF contributions. The scheme is expected to cover 65% of employees and 95% of establishments in the formal sector.

Besides, the additional outlay of Rs10,000 crore under the Prime Minister Garib Kalyan Yojana is expected to boost rural employment in the informal sector and encourage the growth of the rural economy. An attempt also has been made to create jobs through the infrastructure and housing incentives and spending, including 7.8 million through the PM Awas Yojana.

Employment generation in any economy primarily hinges upon the performance of the economy. Even before the pandemic, Indian economy was facing a slowdown with GDP growth rate at 4.18 percent for FY20, lowest in the last 10 years. The lockdown led to a negative GDP growth rate of 23.9 per cent in Q1. As per the recent estimates of RBI, GDP growth rate for Q2 would be at minus 8.6 percent, pushing the economy to a recessionary phase.

With the inflation rate hovering above 7 per cent, the Reserve Bank of India (RBI) has limited scope to announce more monetary easing measures. In such a scenario, the government has to initiate strong measures to guide the economy to a recovery path.

Unless there is an increasing demand for its products or services, companies will not hire more people to the workforce. At present with a weak economic outlook, the government’s push to boost employment in the formal sector will only have limited success as the cost borne by the employer in hiring people is likely to outweigh the benefits.

In this backdrop, many experts believe that the FM’s targeted comprehensive stimulus package covering 12 areas as part of ‘Atmanirbhar Bharat 3.0’ across key sectors will kick start the Indian economy badly hit by the Covid-19 pandemic.

Some schemes stood out in particular. For instance, the extension of the Emergency Credit Line Guarantee Scheme (ECLGS) till March 31, 2021, to provide liquidity support to the 26 stressed sectors with credit outstanding in the Rs 0.5-5 billion range, including healthcare, identified by the Kamath Committee by providing collateral free and 100% guaranteed loans.

The scheme is a positive response to the persistent demand by the industry and is all set to provide great relief to these resource-starved sectors that are battling severe cash crunch, by enabling them to sustain employment and meet other liabilities, till demand recovers. Additional credit to these firms can be up to 20 per cent of outstanding credit, payable over 5 years.

The extension of the Production Linked Incentive scheme to ten new sectors is also likely to boost manufacturing over the medium term.

However, there is a catch. The risk averse nature of banks could act as an impediment. The banking sector is also in stress due to the fear of rising Non-Performing Assets (NPA). As per the estimates of RBI, NPAs of banks may rise to 12.5 percent by March 2021.

Besides, the stringent qualifying conditions in some schemes of the package could dull the uptake of the economy. The job subsidy scheme is only focused on formal sector employees earning less than Rs 15,000 per month. The income tax relief for home buyers is only limited to the purchases of houses costing less than Rs two crore. Much of the real estate sector stress is in houses above this threshold.

The package promises to boost the domestic manufacturing and exports in the country and the extension of the earlier Production-Linked Incentive (PLI) scheme covering three sectors to 10 more champion sectors is expected to improve competitiveness and encourage domestic employment.

On the whole, the Package 3.0 will go a long way in reviving the economic growth and will instill self-confidence that the economic challenges thrown by the pandemic are being tactically handled to help industry thrive and grow creating employment opportunities for the past pool of labour in our country.