Imagine if all of Rs 2100,000 crore under Atmanirbhar package had been distributed among 40 crore workers in the informal sector; it would have boosted demand

The Corona pandemic may have brought about sharp deceleration in India's economic growth - the sharpest ever during the lastfour decades or so - but has yielded a bonanza for the investors.

The wealth of investors in the stock market as represented by the market capitalization of Indian equities (market value of shares multiplied by their number) almost doubled from around Rs 113 trillion (a trillion equals 100,000 crore) as on March 31, 2020 to Rs 226 trillion as on March 31, 2021. In contrast, India's GDP at current prices declined from Rs 203 trillion during 2019-20 to Rs 197 trillion during 2020-21. As a result, the   market capitalization to GDP ratio almost doubled from 56 per cent during 2019-20to 115 per cent during 2020-21.

Gross Domestic Product(GDP) of a country is the total value of goods and services produced during a specific time frame say a quarter or a year. Used worldwide, it is the most crucial economic indicator for reflecting on the economic health of a country. For developing countries such as India, a high year-on-year GDP growth should result in increasing prosperity for its people and vice versa.

During 2020-21, when the Corona pandemic destroyed economic activity on a mammoth scale, annihilated millions of micro, small and medium enterprises (MSMEs), took away jobs of tens of millions and severely impacted earnings of others, one section that went unscathed was the corporate sector in particular, the investors who made huge gains from their shareholdings in corporate entities across all categories such as large-caps, mid-caps, small-caps etc. So, what explains this anomalous situation?

The market value of a share depends on the demand or investors' interest which in turn, is a function of the company's current profitability and their assessment of how this is expected to be in the years to come.

During the year, profitability of majority of the listed firms increased despite decline in revenue. This was made possible due to higher prices of their products on the one hand and reduction in expenditure (that included expenses on wages and salaries, other fixed costs, interest outgo, etc.) on the other. As regards expectation for the future, investors including foreign investors have confidence in the fundamentals of firms and their ability to deliver good returns in the medium to long-term. This is vindicated by a record FPI (foreign portfolio investment) of about US$37 billion during 2020-21. 

Even the measures announced by the Union Government and the Reserve Bank of India (RBI) purportedly to revive growth, boost aggregate demandand promote 'inclusive' development with emphasis on reinvigorating MSMEs ended up adding to the fortunes of the corporate sector.

The steep reduction in the corporate tax rate to 15 per cent for new enterprises set up after October 1, 2019 and to 22 per cent for existing entities (subject to their foregoing exemption and deductions available under existing dispensation)meant leaving an additional about Rs 150,000 crore in the hands of corporate in a full year. The corporate entities also benefitted from the reduction in the policy rate (interest rate at which RBI lends money to commercial banks) by 1.15 per cent  during 2020 over and above a total cut of 1.35 per cent delivered during 2019.

Of the much trumpeted special package of Rs 2100,000 crore announced by the Finance Minister, Nirmala Sitharaman (May, 2020) under the 'Atmanirbhar Bharat Abhiyan', a mere about Rs 200,000 crore was spent on catering to food and other bare basic needs such as higher subsidy on LPG, hike in wages under MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), financialassistance to farmers under PM-KISAN, ex-gratia to Jan Dhan (JD) accountholder etc. under PM Garib Kalyan Yojna (PM - GKY).

The rest Rs 1900,000 crore was given as(i) liquidity support by RBI (measures announcedby Governor, Shashikant Dason March 27 and April 17, 2020injected close to Rs 500,000 crore followed by another Rs 300,000 crore on May 22); (ii) increasing resources of banks and other financial institutions (FIs) to enable them on-lend; (iii) releasing pending dues to agencies tasked with implementation of welfare schemes of theUnion Government. A big slice of these fundseither landed with corporate entities or remained un-utilized.

For instance, out of the Rs 100,000 crore auction of targeted long-term repo operations (TLTRO - 1) of three-year tenor bythe RBI, Rs 75,000 crore went to the big corporate. The apex bank tried to rectify this anomaly when under the TLTRO 2.0 (April 17, 2020) it reserved 50 per cent of additional liquidity injection Rs 50,000 crore for small and mid-sized non-banking financial companies (NBFCs) and micro-finance institutions (MFIs). One wonders whether this reserved quota of Rs 25,000 crore actually went to small players. 

Consider Rs 300,000 crore meant for MSMEs or identified stressed sectors under the Emergency Credit Line Guarantee Scheme (ECLGS). As against a target of eight  million MSMEs beneficiaries, only four million got loan aggregating to Rs 150,000 crore. Even today, the money available under the scheme remains un-utilized; this has prompted the Government to extend the scheme till September 30 and even relaxed the conditions to allowfirms with outstanding up to Rs 50 crore (up from existing Rs 25 crore) avail of the facility.

Look at the payment of Rs 65,000 crore to fertilizer manufacturers (in additionto Rs 71,000 crore allocated in the budget for 2020-21) towards subsidy dues being carry forward from previous years. These payments went towards bolstering their bottom-line. Likewise, Rs 90,000 crore given to power distribution companies (PDCs) (amount since raised to Rs 130,000 crore) eventually landed with power generation companies being former's pending dues to the latter. As for food subsidy, the Government paid to the Food Corporation of India (FCI) Rs 350,000 crore (as per RE) over and above the budget provision of Rs 116,000 crore for 2020-21. A good chunk of this was used by the FCI for clearing dues to its creditors/companies.  

Thus, contrary to the stated intent of the Atmanirbhar package to provide succor to MSMEs and millions of workers in informal sector etc., on ground zero, the money was given mostly by way of tax cuts, reduction in interest rate, loans, liquidity support and clearance of dues which contributed to enrichment of those (read: corporate) who were already well-off. The latter also gained a lot from the reckless spending by governments in developed countries (a gargantuan US$9 trillion was pumped in) even as a lot of that money found its way to emerging market economies including India.

To sum up, the highly inequitable outcome during 2020-21 was due the Government relying too much on monetary supportwhich was availed mostly by corporate entities and too little fiscal support (free food, subsidized LPG, PM-KISAN etc) which barely helped tens of millions low-income earners keep their head above water. In contrast, imagine if all of the Rs 2100,000 crore under the Atmanirbharpackage were to be distributed among 40 crore workers in the informal sector. This would have given the much-needed boost to demand across all sectors and resultant fillip to inclusive growth, but that was not to be.

Even as the pandemic continues to bite during the current year as well (though, to a lesser extent), will the Government give a big fiscal push directed at these most vulnerable people? Going by Finance Minister's stance thus far, it seems unlikely.

(The author is a policy analyst. The views expressed are personal.)