Let us recall the Atmanirbhar Bharat package, and the initial package of Rs 20 lakh crore was divided into fiscal, monetary and macroprudential support to Indian businesses.

Interestingly, Niranjan Rajadhyaksha made an important observation in his article where he highlighted how India’s policy support is consistent in terms of its size and scale with the one offered by other emerging market economies. However, the composition of the support was more similar to advanced economies.

A more nuanced discussion on this distinction is warranted and will be a subject of a later article.

However, the important fact is that the size and scale of fiscal support provided is similar to other emerging market economies.

A key component of the support under the original programme was cash transfers to the bottom one-third of the population, free food entitlements under the Food Security Act and support to businesses in the form of collateral free extension of working capital limits along with regulatory forbearance.

A major part of the policy support was thus directed towards the poor and vulnerable sections in the form of cash transfers, while the support for businesses was with the intention of trying to cushion the impact of the Covid-19 pandemic on the balance sheet of Indian companies.

There was a significant support that was extended to the rural sector — even as it could continue under the lockdown restrictions.

Subsequently, the agricultural sector grew at 3.4 per cent in the first quarter of financial year (FY) 2020-21 as against 3 per cent in the same quarter previous year.

This shows that policy support was indeed instrumental in stimulating the rural economy.

Would the rural sector have performed at even 3 per cent when rest of the economy was shut without the policy support? Probably not.

In fact, the support to rural economy translated into higher appetite for purchase of tractors and other such equipment — all of which are produced in the secondary sector of the economy.

So there will be some spill over benefits of the support extended to the rural economy onto the secondary and tertiary sector. However, the benefits will be small given the relatively lower share of gross value addition (GVA) in agricultural and related activities.

Another important indicator is of employment — and many times on such discussions, people point at the issue of jobs along with the contraction in the economy.

On the contraction of the economic activity, I have written earlier that it was bound to happen as 60-65 per cent of our economy was shut for a major part of the quarter.

In the absence of economic activity taking place, there is bound to be an economic contraction.

No amount of stimulus could have prevented it and even a demand stimulus where government gave every Indian a fixed amount would not have resulted in expansion of economic activity as production was shut.

Thus, there is no policy tool which could have prevented an economic contraction in the event of a lockdown — and the entire world has witnessed an economic contraction due to the lockdown.

However, what could be done was to contain the extent of economic damage that was permanent as a consequence of the pandemic and subsequent lockdown.

This is where the regulatory forbearance and supply side interventions come in handy — as they were employed by several advanced economies, as well as India.

Deferring tax payments, allowing for a loan moratorium and collateral free loans backed by the government were critical in preventing massive bankruptcies.

Of course, some firms may have shut shop — and that economic recovery is still underway, but imagine the extent of permanent scarring of economic activity in the form of a permanent loss of capital in the absence of such policy support?

To give a perspective on this, the unemployment rate in January 2020 in India as per CMIE was 7.22 per cent — the same figure for urban was 9.7 per cent and for rural it was 6.06 per cent.

These figures peaked in the month of April 2020 to 23.52 per cent for all India, 24.95 per cent for urban and 22.89 per cent for rural.

In the first quarter, the unemployment rate as per CMIE averaged 18.47 per cent as against 7.4 per cent in the second quarter of the financial year.

Incidentally, all India unemployment rate for September is at 6.67 per cent.

Table 1: Unemployment Rate (in %)

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