Daily Financial News Analysis – 1st June’20

Table of Contents

Size of the fiscal package

At least one COVID case has been observed in over 200 countries
Countries have been forced to take extraordinary steps to counter this inhuman invasion.
12|05|2020: Prime Minister Narendra Modi gave a call for a self-reliant India movement.
Subsequently, and spanning a week, the prime minister-finance minister duo unleashed a set of stimulus measures for the immediate short-term, and for the medium-term, a set of long-pending reforms in agriculture, labour and industry.
Written by Surjit S Bhalla
The writer is executive director IMF representing India, Sri Lanka, Bangladesh and Bhutan

The conversation in India has revolved around the size of the fiscal package.
Practically everyone is arguing that we have more fiscal space and the government (especially according to the critics) is being heartless by not spending more.
But this is a mistaken view, not grounded in the reality of the IMF’s data.
IMF has started publishing a policy tracker (IMF-PT) which reports on the fiscal and monetary policy stance and responses for 193 countries.
According to the IMF-PT, the fiscal component of the Indian package is estimated to be at least 3.5 per cent of GDP as expenditure for poor households, migrant workers and agriculture.
There is an additional 0.5 per cent of GDP for states to spend unconditionally, bringing the fiscal package excluding loans to businesses to at least 4 per cent of GDP.
The support for businesses (MSMEs) is estimated to be 2.7 per cent of GDP.
Of this, at least 2 per cent of GDP is in the form of 100 per cent credit guarantees and equity infusion.
Among major developing economies, only Brazil (8 per cent of GDP) and Peru (7 per cent of GDP) have a fiscal stimulus higher than the 5 per cent level for India.
The Brazil estimate includes about 3 per cent of GDP as working capital loans to businesses and households.
The fiscal support level for some important emerging economies is — China 2.5 per cent of GDP and Indonesia 3.5 per cent.
While comparing the fiscal stimulus packages across countries, it is important to understand that such packages are in the nature of additional spending and tax reliefs which can work directly through aggregate demand or indirectly by mitigating risk and enhancing access to funds (if they are in the nature of credit guarantees to financial institutions and non-financial enterprises).
A large number of fiscal stimulus packages announced by different countries contain credit guarantees to financial institutions, SMEs, and agriculture.
Hence, it is difficult to segregate fiscal stimulus into its pure and impure components.
To put into perspective, the average of all fiscal measures in the G24 developing economies is equal to 3.6 per cent.
No matter how the calculation is done, India is a positive fiscal stimulus outlier; by IMF-PT calculations, the stimulus is close to the largest among major emerging market economies.
The rich nations are spending more — they can afford to.
Japan announced what may be the upper limit to the expansion — 21.1 per cent of GDP.
However, this does include large elements of loans and credit guarantees.
Through a combination of several fiscal measures (tax deferrals, credit guarantees, etc.) the US has pledged close to 13 per cent of GDP.
The European Union, on average, has pledged 4 per cent of GDP.
The average for advanced countries is around 6 per cent of GDP.
Several experts in India have contended that the fiscal stimulus is very low.
The repo rate now stands at 4 per cent, with inflation well contained.
India has announced several economic reforms as a part of the stimulus package.
These are long-awaited — freeing up of the labour market, allowing farmers to sell their produce and land to who they choose, removal of archaic laws like the Essential Commodities Act, with the promise of more to come.
This is not an empty promise — the Centre will advance another 1.5 per cent of GDP to states to expand spending.
This advance will be conditional on them for undertaking long-pending reforms.
The Indian fiscal package is reformist, well-disciplined and provides focused support; and if needed, there is still room for additional measures.

TRIPs

India has pitched for flexibility in global intellectual property rights (IPR) agreements, in order to ensure access to essential medicines and vaccines at affordable rates to all as the world grapples with the Covid-19 pandemic.
At the virtual General Council Meeting of the World Trade Organization on Friday, New Delhi also said there was an “urgent need” to build the digital capacities of developing countries and least developed countries (LDC) so that they benefit from e-education and tele-medicine.
Highlighting its five priorities at the WTO, India called for effective use of flexibilities inherent in the Trade-Related Aspects of Intellectual Property Rights (TRIPs) to ensure access to essential medicines, treatments and vaccines to all at affordable prices, especially in the context of the Covid-19 pandemic.
India also emphasised that the Appellate Body impasse has to be resolved at the earliest.
During the last three years, the WTO has faced some of the most challenging times.
India also flagged other priority areas…
On the issue of Kazakhstan re-offering to host the Ministerial Conference in June 2021, India said the certainty of dates will “help mute criticism that the WTO has not held a Ministerial Conference at a critical time when both trade and the rules-based multilateral system have been under serious threat”.

U-WIN

The government has pulled out a 2014 proposal to provide identification numbers to workers from the unorganised sector after facing all round criticism for not doing much for migrant labour hit hard by the Covid-19 lockdown.
The new look ‘Unorganised Worker Identification Number (U-WIN)’ will be seeded with Aadhaar and have expanded coverage.
Besides, it would include other information such as qualifications and skill set of the worker.
U-WIN project to create a comprehensive database of unorganised workers, including the migrant workers.

In 2014 the labour ministry had launched a pilot for Unorganised Worker Identification Number (U-WIN) in Gujarat, but the project was stalled on the grounds that it was a duplication of Aadhaar that was conceived as a single identification number for individuals.
A finance ministry official said the ministry is now working with the labour ministry to address this data issue.
U-WIN will be expanded to cover 40 crore unorganised sector workers.
Of the total workforce of 50 crore, only 10 crore are covered under government-run social security scheme of Employees’ Provident Fund Organisation and Employees’ State Insurance Corporation.