A guide to the Prime Ministers’ $ 20 trillion financial package

Well, if you were Prime Minister Narendra Modi, you would probably choose option two. Nothing else can explain why, faced with an overwhelming consensus among economists and political observers in favor of massive cash transfers to the poor and the adoption of an economic recovery, Modi chose to offer less than 2% of gross domestic product (GDP) real stimulus spending (against the 10% of GDP indicated in its 20 lakh crore “stimulus package). The other parts of the package relate to medium-term reforms, liquidity easing and loan guarantees for struggling micro, small and medium-sized enterprises (MSMEs).

It is interesting to note that many activists who once opposed cash transfers (they requested in-kind grants, delivered through an efficient public distribution system or PDS) are now requesting cash transfers, while Modi uses the PDS to distribute cereals and legumes to the needy. . No one cares about asking where the money goes to everyone at a time when our stuck economy is producing little more than food, essentials and alcohol. No one wants to know how to stimulate the economy with reductions in the Goods and Services Tax (GST) when production has not even started in most sectors. The right time to stimulate demand is more or less over.

When there is a deafening chorus of Keynesians and modern monetary theorists pulling in one direction, the Prime Minister has stood firm. Although this did not prevent him from expanding the national guarantee of rural employment of Mahatma Gandhi (MGNREGS) by another 40,000 crores of this tax seems to be an admission that the return of millions of migrants to their countries of origin presents a major political problem if they end up starving or radicalizing. Political constraints similar to the loss of three states from the Hindi belt in December 2018 may have prompted Modi to launch Prime Minister Kisan Samman Nidhi, involving the annual payment of 6000 to farmers, in the 2019-2020 budget. This too needs to be put in context: it was aimed at avoiding a larger push toward waivers of the agricultural loans that the Congress party supported.

The exceptions to Modis’ preference for empowerment over law do not prove the rule. He is neither Hayek nor Friedman, but he thinks that while the government can help you to some extent, you ultimately have to help yourself. There is no free lunch, but there may be subsidized lunches for a period of time.

A key element of the Modis approach to the economy is a system of incentives and sanctions in which all economic actors, rich or poor, small or large companies are led to adopt a change in behavior. If his methods deviate from traditional economic advice, obsessed with monetary and fiscal measures, it is perhaps because he does not give them as much importance as his own instincts.

This explains the interest subsidies for home loans on free housing, free connections to Ujjwala gas where refills are paid by the user, and the electricity scheme for all of Saubhagya where connections are free but where the electricity consumed must be paid for. Even MGNREGS has been refocused after 2014. The number of man-days created has steadily decreased as the plan has gone from a mess to something where real assets are created.

In the case of companies, the Modis approach has consisted in causing behavioral changes, often by causing enormous economic disruption. The GST followed demonetization and digitization, and the Indian tax treaties with Mauritius, Singapore and Cyprus were renegotiated to prevent round trips and anonymous funding.

One aspect of the Modis approach reflects what a venture capitalist (VC) would like to look for real options. “A VC does not know in advance which of its countless investments is going to be a big winner and who will bankruptcy. places several small bets and uses options to increase only those that are promising. This could explain Modis’ tendency to announce dozens of schemes, many of which are now difficult to remember. If he sows enough seeds, it seems bet, some will germinate and deliver. In his last term, regimes like Ujjwala and PM Kisan Samman delivered a lot of time. The Insolvency and Bankruptcy Code, the Jan Dhan Yojana, and digitization also did quite well worked.

Modis The 20 lakh crore covid package does the same. It initiates many reforms in many areas, and even if some click, the results will be substantial. The Modi method consists in simultaneously adopting two opposite approaches, incrementalism and disruptive big bang movements, small bets in a large number of fields and large ones which can be extended (Jan Dhan, digitization, Swachh Bharat toilets, etc.) . Modi wants Indians to change the way they think and work, and he doesn’t mind taking endless flaks of agenda-driven experts and critics into the process.

R. Jagannathan is editorial director of Swarajya magazine