The Indian Prime Minister recently disclosed the ‘Atmanirbhar Bharat Abhiyan’, or ‘Self-reliant India Mission’. The programme will feature an economic stimulus package worth Rs 20 lakh crores, aimed at facilitating the scheme’s execution. The proposed fiscal package represents 10% of India’s Gross Domestic Product (GDP) for the fiscal year 2019-2020. The package is set to focus on various aspects, including land, labour, liquidity, and laws.
The Self-Reliant India Mission
The ‘Self-Reliant India Mission’ plans to reduce import reliance by focusing on substitution, improving safety compliance, and producing quality goods to capture a global market share. The concept of self-reliance does not imply exclusionary or isolationist strategies but proposes to provide assistance globally. Emphasis is placed on promoting local products.
There are two phases projected for this mission. Phase 1 includes sectors such as medical textiles, electronics, plastics, and toys where local manufacturing and exports can be facilitated. Phase 2 includes products like gems and jewellery, pharma and steel, etc. This mission is structured around five pillars: economy infrastructure system, vibrant demography, and demand. It is expected that this mission will complement the ‘Make In India Initiative’ which seeks to boost manufacturing in India.
Inclusion of Reserve Bank of India’s (RBI) Expenditure in Fiscal Package
The proclaimed fiscal package is seen as substantially lower since it incorporates actions from the central bank, RBI, even though RBI only controls monetary policy and not fiscal policy, which is under the control of the government. As such, government expenditure and RBI’s actions are neither the same nor can they be combined in this manner. Essentially, fiscal packages aren’t declared this way globally. For example, when the US announced a relief package amounting to $3 trillion (Rs 225 lakh crore), it only referred to the government’s expenditure, excluding that of Federal Reserve, their central bank.
Implications of RBI’s Inclusion in Fiscal Package
If the government includes RBI’s liquidity decisions as part of the fiscal package, then the actual new spending by the government can be significantly reduced. That’s because RBI has been implementing Long Term Repo Operation (LTRO), which aims to infuse liquidity into the banking system. Usually, the direct expenditure by a government contradicts with the RBI’s measures. This is because while the former directly stimulates the economy through wage subsidies or direct benefit transfers, the latter primarily makes more money available to the banks for lending to the broader economy.
However, during crises, banks are more likely to park this money back with RBI instead of lending it out, reducing the stimulus’s actual impact. Therefore, despite the declared stimulus amount being 10% of GDP, less than 5% cash outgo is expected.
