Business Subsistence Package: Relevance, Adequacy and Impact

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There is no denying the fact that the size of the loss incurred by J&K in last 13 months i.e. approximately Rs. 41,000 Crore and the meager volume of the financial response i.e. Rs. 1353 Crore, is beyond comparison.

SOON after the first phase of the unprecedented lockdown, vis-à-vis article 370 abrogation was eased in the month of Dec 2019; the Kashmir Chamber of Commerce and Industry (KCCI) started running from pillar to post highlighting the piling up losses on account of irreversible damage sustained by the businesses across the Kashmir economy. From meeting Lieutenant Governor of the newly crafted Union Territory in Raj Bhawan to seeking an audience with the Union Finance and Home minister in the North Block, their desperation for survival forced them to leave no stone unturned. Despite consistent and strenuous efforts, there was no tangible response from either the UT or the Union Government for over a year.

However, soon after the appointment of the new LG Mr. Manoj Sinha, things started moving at an accelerated pace. Within only 12 days of his appointment, a high level committee was framed which eventually doled out an economic revival package of Rs. 1353 crore within a short period of only 30 days.

The two aspects, therefore, which deserve to be acknowledged before embarking on the relevance, adequacy and impact of the package is the consistency and grit demonstrated by the KCCI and the swift and forthcoming attitude showcased by the new LG.

There is no denying the fact that the size of the loss incurred by J&K in last 13 months i.e. approximately Rs. 41,000 Crore and the meager volume of the financial response i.e. Rs. 1353 Crore, is beyond comparison. To put things into perspective, J&K’s GSDP as per conservative estimates contracted by over 25% in the last 13 months. Compare this colossal contraction to the microscopic relief package, which is just 0.74% of the UT’s GSDP.

J&K is not the only UT/State which has announced a state level economic revival package in order to fight Covid-19 lockdown induced economic slump. For example, compare J&K’s relief package with a mammoth business revival package of Rs. 20,000 Crore announced by the state of Kerala, which is around 2.28% of its GSDP. The state of Gujarat too announced a substantial Rs. 14,000 Crore Covid19 economic revival package, which is around 0.90 % of its GSDP. Contrary to other states of India, the fact that J&K has not been incurring losses on account of Covid-19 lockdown alone but also because of the lethal August 2019 shock, makes our paltry fiscal response even more insignificant.

Moreover, the package has been conveniently built around bank loans, ignoring the vast drivers of economy which operate outside the system of bank credit. A major portion of the J&K economy is informal in nature, for which procedural barriers and hassles erected by the banking system act as disincentives for lower strata of businesses in choosing formal credit and banking channels. Almost 80% of the package i.e. Rs. 1089 Crore is aimed at easing the burden of bank interest for the indebted businesses. A part of it i.e. Rs.139.24 Crore is a part of the pendency on account of restructured loan accounts of 2014 floods and 2016 unrest. As per Centre for Monitoring Indian Economy (CMIE), J&K’s workforce hovers around 43 Lakh. And as per Reserve Bank of India, there are a total of around 18 lakh borrowers in J&K, of which approximately 42% have exposure towards personal loan products. The remaining 58%, therefore, comprise approx. 10.5 Lakh business loan borrowers. In other words, 80% of the package announced, shall benefit only 24% of the 43 lakh income generators in the economy, leaving a whopping 76% outside the purview of the interest subvention scheme. Factor to it the fact that the ineligibility of Kisan Credit Card borrowers, Artisan Credit card borrowers and the eligibility riders of being standard on July 2019 and March 2020, the net eligible borrowers who shall be able to benefit under the interest subvention scheme is going to shrink even further.

Although the Govt for the first time has acknowledged the chronically turbulent nature of the economic environment within which the businesses in valley operate, however, when it comes to the calculations— there has been a clear mismatch in deeds and words. The calculation of 5% interest subvention, which constitutes over 70% of the package, has been carefully decoupled from the Aug 5, 2019 political shock and the base assumption on which almost the entire response has been crafted, recognizes Covid19 lockdown from April 2020 as the starting point. This has been a serious letdown.

In addition to the above mentioned points, the sectoral hierarchy of the economic drivers of J&K have been totally ignored and the response has been left to the existing credit exposure distribution patterns of the banking system. The amount of incentives received by respective sectors, therefore, shall be governed by the credit portfolios of banks. By nature of the capital intensive business models in manufacturing and construction, the flow of the package will be skewed accordingly. This might end up leaving comparatively less credit dependant sub sectors of service sectors like hospitality, tourism, trade and social sectors like education and healthcare in lurch. This broad brush approach can be fatal given the fact that Agriculture, Horticulture, Hospitality and Tourism occupy the central axis around which rest of the economy operates in J&K. A sector specific relief measure would have been more effective in optimizing the limited resources available with the fiscally challenged Government coffers.

The incentives of waiving of the water charges is a welcome decision, however, electricity charges waiver have been too miserly designed. This has resulted in more heartburn than relief. Projecting allocation of Rs.15 crore for bio-digesters as a business revival incentive is absolutely misplaced. It is more of Government’s obligation towards ecology rather than a fiscal support to the houseboat owner. Likewise, the insurance premium support announced as a part of the package for transports is a decision in the right direction. It would have been even better if the upper caps would have been raised more magnanimously.

Transporters were expecting relaxation in various taxes like the passenger tax, road tax, GST on insurance and waiver of transport loan EMIs for the last 12 months. None of their expectations were misplaced given the amount of business this sector has lost in the last 13 months and the amount of damage it has done to all the families associated with it. A remuneration of Rs. 1000 for 6 months, therefore, for these drivers and cleaners associated with buses, mini buses, cabs and autos need to be revisited, both in terms of amount as well as duration.

Other allocations in terms of Rs.1000 monthly income support towards 3100 artists and 19914 workers in the tourism sector deserve an applause, however, here also the duration as well as amount deserve to be revisited. These economically vulnerable sections of the society are the basic elements of demand in the system. Handing over cash directly to them makes not only social but also a lot of economic sense.

The business revival package was a much needed injection of confidence for the rotting economy of J&K. Despite being insufficient in size and not being holistic in direction, the fact that the administration on records has stated that there is more to follow, should give stakeholders even stronger reasons to pursue the demands. Administration at the same time needs to widen its horizon and include more effective response tools like tax rebates, small loan waivers, operational expenses support and above all connectivity, logistical and marketing support to the limping businesses. The scale and nature of the twin shocks faced by the J&K economy has been extremely gigantic, the response too, therefore, deserves to be equally sizeable and effective. Neither the businesses nor the Government can afford anything short or anything late.

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Ejaz Ayoub

Ejaz Ayoub has been working in the BFSI industry in the field of Financial Risk Management, Strategy and Foreign Exchange. He can be reached at:ejaz.ayoub@gmail.com.

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