Modi 's 20 Lakh Crore Package | Explained by Dhruv Rathee - YouTube

Greetings friends

Our Prime minister, on 12th May, 2020, at 8:20 PM- that is at 20:20

announced a 20 lakh crore economic package in his speech of 20 minutes

Thank heavens this announcement was not made during a 20-20 cricket match

The Prime minister merely announced it, after which

our Finance minister divulged the details of the package part by part over the next five days

Come, let us find out what this package of 20 lakh crores holds for you

for a common man and for the middle class people

What are its benefits and disadvantages?

And is the 20 lakh crore package really worth 20 lakh crores?

We will find out about all of this in today's video

And I will also explain some complex economic terms like fiscal stimulus and liquidity injection in today's video

Come, let us see

When you hear 20 lakh crore rupees, then you might assume that this means that

that the government will spend 20 lakh crore rupees from its coffers to aid the public

But it is not so

In order to comprehend this, you will first have to understand

that there are two kinds of policies in economics- monetary policies and fiscal policies

The monetary policies are framed by a country's central bank

RBI is the central bank in India

Monetary policies basically involves fluctuating the interest rates

change the supply of money in order to control inflation

This is done by the RBI

The other policy is the fiscal policy which is made by the government

The government alters its spending- which areas to spend more, alters the tax rates

These are the fiscal policies

The monetary policies are decided by the RBI and the RBI is independent of the government

that is technically- in theory

And the government formulates fiscal policies

8 lakh crore rupees out of the 20 lakh crores is a liquidity infusion by the RBI

We will talk about what liquidity infusion is in the video ahead

But the point is that since it is a measure taken by the RBI, it classifies as a a monetary package

The problem is that in 20 lakh crore rupees of economic package rolled out by the government

It is incorrect to count the monetary package of the RBI

It is unfair to do this

Because whenever we have talked about the economic packages of the countries across the world,

we considered only fiscal packages

When we said USA rolled out a 2 trillion dollar economic package- it only meant fiscal package

entailing what actions and decisions the government took there

Germany rolled out a package of almost 190 billion dollars

That too, was a fiscal package

But the Indian government combined the monetary and the fiscal package together to show

that the "government" had rolled out a package of 20 lakh crores

At the outset, let us talk about the 8 lakh crores set to come in from the RBI

This money will come from the reserves of RBI

It is called a liquidity infusion because in economics, "liquid" means

converting any asset into cash which will make its buying and selling easier

The money lying in the reserves of RBI was not in use in the economy

It is simply laying there

When RBI will make its reserves liquid, then it will seep into the economy

and the people will be able to sell or buy it once it will be converted into cash

The RBI will do this by lowering its interest rates so that the rest of the banks that take loans from the RBI

are able to avail loans for lesser interest

And when they take loans at lower interest rates,

they would be able to loan out to the companies and people at a lower interest as well

And in this way, the extra money of 8 lakh crore rupees with the RBI

the reserves of the RBI would be injected into the Indian economy basically

The money would first go to the banks and then reach the companies and the people

The money would come into the economy in the form of loans

So the loans that RBI gives to the other banks and the interest rates that it charges them is called repo rate

You must have heard in the news that the RBI is cutting down the repo rate

Because this is the only way- through the process that I explained- RBI would slash its interest/repo rate

the other banks would be able to avail cheaper loans and this is how money would be infused in the economy

This is a very simplified explanation that I have put before you for you to understand

So basically the point is that the 8 lakh crores from the RBI would have negligible effect on the end consumer

So, out of the 20 lakh crores, 12 lakh crores remain which is the fiscal package from the government

Out of this 12 lakh crore, the government had already announced 1.7 lakh crore in the previous package

That is being recounted in this

And there are several other things in this remaining corpus that the government has already announced earlier

but they are recounting it in this 20 lakh crore package

An article in the New Indian Express tells us in detail the schemes that the government had already announced

but were recounting it in this 20 lakh crore package

For example, the PMMSY yojana

which the government had announced in the 2019 union budget

Let us get a section by section overview to find out what this economic package entails

First, for the MSMEs- Micro, small and medium enterprises-

The government has decided to dole out collateral free automatic loans worth 3 lakh crore rupees

The companies would definitely benefit- but keep in mind- this is a loan

Money is being loaned out and not given out

There would be a liquidity infusion worth 90,000 crore rupees for the power distribution companies

It is a loan/loan guarantee in a way

and it is being expected that the power companies would pass on the benefits to the consumers

Our farmers would be given a concessional credit of 2 lakh crore rupees

This, again, is giving out loans at lower interest rates

A special credit facility worth 5,000 crore rupees has been provided for the street vendors

This too, means giving out loans to them

A supply of free food grains will be provided for the migrant workers for the next two months

which would cost around 3,500 crore rupees

and the government claims that this will benefit 8 crore migrant workers

One nation, one ration card will also be implemented by May 31st, 2021

This is a good news but it is yet to be seen how much of it is implemented on ground

The government has also said that the migrant workers returning would be given employment under MNREGA

But have you observed how most of the things in this economic package

are loans, loan guarantees or credit facilities?

Basically, the people and the companies are being given out loans at lower interest rates or without collateral

There is nothing wrong with this- it would definitely benefit some companies and some people

But at the end of the day, there are merely loans being given out

Today, the person who does not have a job and is not able to bear his expenses

will be able to sustain himself today with the help of the loans but someday, he will have to pay it back

So, overall, in the long term, this is not reducing the pressure or the stress upon the public

A lot of people- Atleast I had expected

that the government would transfer money directly into the people's accounts

so that they would be benefited today- not that loans would be doled out with an expectation of repayment

The situation today has developed due to the lockdown by the government

It was necessary but not all the burden should be piled up on the people

Furthermore, such things have been counted in this economic package of 20 lakh crores

which is basically your money

For example, TDS reduction by 25%

What benefit does it impart? None, actually.

Just that at the moment, you would get more liquidity in TDS, but, overall, you wouldn't get a lot of money

Similarly, EPF contribution has been reduced to 10% from 12%

This too, was your money that you were going to access later

But slashing that today would mean that you are borrowing that money from the future

This is basically the public's money being given out to the public and being counted in 20 lakh crores

So a question would arise here is that 8 lakh rupees is from the RBI

loans would be provided worth this lakh crores

old schemes worth this lakh crores are being counted by the government

our own money worth this lakh crore is also being counted

So how much money is the government actually spending

for the benefit of the people, out of the 20 lakh crores?

The right answer of this is anywhere between 1 lakh crore and 2.7 lakh crore

Different people have made an estimation of this

Yogendra Yadav ji claims that this amount would be 1.7 lakh crore rupees out of 20 lakh crore rupees

which the government will actually spend

Barclays is a famous financial services company of England

It has made an estimation that this amount is 1.5 lakh crore rupees

Care ratings has made an estimation that this amount is 2.73 lakh crore rupees

HSBC India claims that this amount is around 1% of India's GDP and not 10% of India's GDP

that is, around 2 lakh crore rupees out of 20 lakh crore rupees

So where is the 1-2 lakh rupees (that the government is actually spending) being spent?

Out of this, 40,000 crore rupees would go to MNREGA

which is good, in my opinion

3,500 crore rupees would be spent on buying foodgrains for the migrants, as stated earlier

which is another good thing as it would aid them

Out of this, 8,000 crore rupees would be utilized in Viability Gap Funding

That is, those projects that are not economically viable but are projects of social infrastructure

which the country needs- for example, constructing roads in a village

You can see the entire list here

Overall, in my opinion, there is negligible benefits for the salaried middle class people

Furthermore, the government took some major decisions like privatizing the coal sector

privatizing the defence production

privatizing the power distribution

and privatizing the space sector

Now, I don not adhere to whether privatization in these sectors is a good or a bad thing

Whether the decision was good or bad will be revealed by the implementation

In my opinion, if I were to summarize this entire economic package as an example,

then this is a situation wherein you assume your friend needs 1,000 rupees from you

He asks you for 1000 rupees to run his household since he does not have money

You hand over the money to him in an envelope and he opens it and sees

that he has only got 200 rupees instead of 1000

But you insist that you have given him 1000 rupees

He asks you how because he an only see 200 rupees

Then you tell him- Look, my parents gave 500 rupees to your parents yesterday

Count that in this

Two months earlier when we went to eat in a restaurant, then I had paid your bill worth 200 rupees

This makes it 700 rupees

Then, there are 100 rupees in your wallet. Count that too- This amounts to 800 rupees

And I just gave you 200 rupees

And by the way, 100 rupees out of this 200 rupees is a loan that you will have to pay back

Alright? So this is your package of 1,000 rupees

I've given you 1,000 rupees- Now, go and have fun

This is the situation that our government has done with us in this package of 20 lakh crore rupees

But this is my opinion. Do tell me you opinion. Is there something in this package that I have missed out ?

Do write down your opinions in the comments below

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Talking about solutions, then most of the experts have suggested that

the government will have to transfer money directly into the hands of the people

so that the people have money and the demand in the economy rises

so that more goods are bought and only then can the GDP rise

This is the only way to revive the economy

The work would remain incomplete by giving out loans

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We will meet again in the next video

Thank you