Why the Government Stimulus Hasn’t Come

I encourage any eminent economists to try and explain our government’s rationale to delay the stimulus! I’ve attempted to do so in this article!

Our economy is in the ICU. We need the ventilator now. Not after it passes away. Giving us two ventilators later on won’t help. We need just the one. And now.

Migrant labour are restless, as they have been laid off. Factories are closed or closing. Tourism, Travel, Hospitality, Restaurants, Malls, Gyms, Spas, and related activities employ over 10 crore combined. At least 3-4 crores of this have already been laid off, and with every passing week of the lock-down, there will be a further 1 crore jobs lost.

I fail to understand why the government would wait to announce a comprehensive stimulus package. Let’s explore some reasons why? Hopefully we can debunk some of these and encourage the government to open its purse strings. And save the economy.

I hope they act to save jobs, lives and livelihoods. Else, they will not save their seats in the next election.

Some reasons why it hasn’t acted:

1. It doesn’t know the extent of damage, hence it must find out what it is, and then provide a stimulus accordingly. None of the western governments knew the extent of damage done, but they have announced a package a long time ago. The Nasdaq has recovered all of its lost ground this year due to the timely Fed stimulus! We have enough data from various sources - lacs of employees in GST, IT, Central Statistical Organisations, etc are employed for exactly this reason. None of them know how to calculate the losses? The simple way to react would be to estimate the GST losses, and start providing GST refunds to GST payers based on pre-COVID payments. And trim these government departments as they don’t help!
2. The government is broke. This argument is pure BS. Anyone who studies the central government finances knows that a majority of the funds go towards paying for government employees salaries and pensions. So the government is broke because it is large and unwieldy and should use this downturn to downsize. Now, this government claimed to run on a “minimum government” platform, but has not divested anything when the going was good. It now needs to divest at a cut-price when the chips are down. It likely won’t. This is a shame, as our government has no business being in most businesses. Next, let’s talk about interest - one of our large expenses. Countries are charging negative interest currently so our large USD 500 billion war chest of reserves earn us literally nothing right now, and we will likely be charged for the privilege of having reserves! Instead of this, we could have bought stakes in large OMC’s across the world to ensure we secure a large portion of our imports (i.e. Oil) for the foreseeable future. We can still do this.
3. A large stimulus will lead to us being downgraded by the Ratings Agencies. Our currency will be in free fall post that. If there is no stimulus, there will be no economy to downgrade. How’s that for a counter argument. If there is large scale unemployment, won’t we have cascading NPA’s and defaults? Won’t the ratings downgrades come anyways? On the other hand we can print ourselves out of this mess if we choose to. Will we?
4. It doesn’t want to be seen as helping “big business”. The reality is that any country has job creators and job seekers. The government can only employ so many job seekers. It has to rely on the best and brightest entrepreneurs to hire the rest! And the best jobs are in the private sector. Unless we molly-coddle our job creators, we will be a poor nation. This is fact, the rest is socialism. Stop saving the poor, save the job creators (i.e. the rich). They will employ the poor. And there will be no more poverty. Every single country that has grown rich has understood this. But will any government do this in India with our deeply ingrained socialism? I doubt it. They WANT poverty so that they can dole out favours in lieu of votes.
5. Taxes on the rich, on alcohol, on cigarettes, on oil, on everything nice will solve everything. Well, if you keep doing this it is a key reason that good job creators move abroad. We celebrate Indian origin entrepreneurs who went abroad because we secretly wish we had the good sense to decamp when they did. Now we are stuck here, with a country that taxes everything that moves. Where do the taxes go? Into making the government bigger, and yes, into the politicians coffers. But higher tax rates don’t always translate into more total revenues. For instance - higher the alcohol tax, more the bootleggers who step up. Gold smuggling goes up due to high gold levies. Chinese cigarettes are being smuggled and dumped in India due to high taxes on local cigarettes. The government does not get its fair share of higher levies. In fact it loses every time. Yet, this drama repeats. Look at alcohol. If it were reasonably taxed, and liberalised (allow home delivery of alcohol, 24x7 vending, simpler manufacturing regime), there would be a windfall to the government. But, the government feels it cannot encourage alcohol. So, it curbs it. Do people drink less? No. They drink imported / smuggled / hooch liquor and the government doesn’t get it’s share of revenues. Simple. Same with gambling. India is probably one of the world’s biggest gambling markets, but Pakistan-based bookies make a killing using the underworld, and our government gets nothing... I could go on, but you get the point.
6. It doesn’t want to help tourism, hospitality and restaurants because these are industries for the rich, or are sin industries. No Indian government has helped hotels in any way, shape of form thinking that they are for the rich only. Yes, the rich use hotels. So? Each hotel room leads to a direct employment of 2, and an indirect employment of at least 6 people. Our industry employs a minimum of 5 crore people. If an average family has four persons, this is a livelihood of 20 crore people. Indirectly it is 80 crore people. 10 percent of global GDP is in tourism. If we want dollars so badly, why not promote the one industry where we have a competitive advantage? Why do we think this is an industry only for the rich? These jobs provided by the industry are full-time, excellent jobs. And these jobs being lost due to the delay of the stimulus package.
7. Their employment data from ESI, PF, etc is inaccurate. I believe this is a weak excuse. If someone is evading PF or ESI, then they don’t deserve to be compensated in trying times like this. Why not reward honest tax payers with bailouts?
8. It can force people not to fire their employees, so all will be well. As can be seen by the hordes of migrant labour walking towards their homes, jobs are being lost anyways. There is no power that can force a business to kill itself for the sake of its staff. It just doesn’t work. Social security is the job of the government, not businesses. I hope the government understands that when millions are out of work, they will penalise the government in the next election. Jobs are a critical driver of votes. Why are they keeping mum, and not over correcting? Save the employers, and you will save employees also. Or save the employees, and free the employers off their salary burden. But do neither and you will fail both employees and employers. People are asking, where are the PM Cares funds? Why were the funds not used for migrants. For factory workers. For hotel staffers. For restaurant workers. What are they (and us) paying taxes for? For the government to save us before doomsday.
9. It can force banks to postpone EMIs, so all will be well. Well banks have postponed EMIs, but charged interest on the same. All of the liquidity injected by the RBI is still sitting with it. Banks are afraid to lend. And why would the banks lend if they fear the economy is going south? All this makes government intervention even more important.
10. It can raise taxes on petrol and diesel anytime. It just raised excise again. In the middle of a pandemic where the economy is in free fall. Now, think of a factory making something in India. These large taxes are baked into each item they produce, so the high taxation makes our goods unviable globally. If we want to make in India, we need to have lower transport costs, and lower input costs. Am I missing something? The economic impetus from this would save the economy, and raise manufacturing. We should have abolished all taxes on fuels. This would be a windfall for everyone - airlines will be able to recoup losses, people will travel, people will manufacture, the taxed part of the economy (middle class) will benefit. And so will the poor benefit - as the economy grows, so will jobs.
11. It can blame the previous government for this. Okay this one is written in jest. It knows it can’t.

I know this government can execute when it wants to. It just needs to WANT to. I hope my article, my voice is one spark. That lights a fire. That wakes the Kumbh Karna up, and makes it start the war against the economic malaise in earnest.

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