<strong>Handouts are temporary measures which strain public finance without helping the economy</strong>

That the Narendra Modi government has mobilized it entire machinery to provide succor to the poor is commendable, for the crisis the coronavirus has engendered has hit them the hardest. But those who matter also need to realize that relief will be only a small, short-term, and temporary measure; the real solution lies in phasing out the lockdown and expediting reforms so that economic activity, brought to a grinding halt, is revived and galvanized.

Unfortunately, there seems to be a greater emphasis on handouts than on graded exit. “Using the digital payment infrastructure…, more than 30 crore poor people have received financial assistance of Rs 28,256 crore under the Pradhan Mantri Garib Kalyan Package announced by Union Finance Minister Smt Nirmala Sitharaman on 26th March to protect them from the impact of the lockdown due to COVID-19,” a government statement said yesterday.

The statement also listed disaggregated spending: support to the Pradhan Mantri Jan Dhan Yojana (PMJDY) benefitting 19.86 crore women account holders Rs 9,930 crore; front-loaded payments to farmers under PM-KISAN, Rs 13,855 crore, with 6.93 crore beneficiaries; support to 2.82 crore NSAP beneficiaries (widows, senior citizens, and differently-abled) worth Rs 1,405 crore; Rs 3,066 crore spent on 2.16 crore building and other construction workers.

That is a lot of money, but this is unlikely to either provide regular employment to the people who need it the most or boost the economy. And it will surely further burden the public exchequer. A limping economy will worsen both public finance and the people’s lives.

If the India lockdown continues till mid-May along with moderate relaxation after the end of 21-day lockdown on April 14, it could put 32 million livelihoods at risk and swell non-performing assets (NPAs) by seven percentage points, IANS quoted a McKinsey report as saying.

This will result in the economy contracting sharply by around 20 per cent in the first quarter of 2020-21, with -2 to -3 per cent growth for the fiscal. The McKinsey report, titled ‘Getting ahead of coronavirus: Saving lives and livelihoods in India,’ said that restarting supply chains and normalizing production and consumption can take three-four months if the lockdown goes till mid-May as the virus ligers on.

If the lockdown continues for additional two–three weeks in Q2 and Q4 FY 2021 because of virus resurgence, it could mean an even deeper economic contraction of around 8 to 10 per cent for fiscal year 2021, the report said. “This could occur if the virus flares up a few times over the rest of the year, necessitating more lockdowns, causing even greater reluctance among migrants to resume work, and ensuring a much slower rate of recovery.”

Therefore, the need of the hour is to be prepared for medical emergencies. No less important, however, is the phasing out of the lockdown.

Demands on the government are increasing. India Inc is seeking a stimulus package. The Confederation of Indian Industry wants one, so does the premier business chamber Ficci; the latter has pegged package at Rs 9-Rs 10 lakh crore.

The government may announce some support to the government; that would be helpful; but more important would be the loosening of stringent regulations, including price controls, that have been the bane of the economy for decades. Quick and substantive deregulation will be the biggest boon not just to the economy but also the poor, for only growth creates jobs and employment is the biggest poverty eradicator..