My takeaway from today's FinMin PC is this: The government is trying to get other institutions to spend money, through various incentives and guarantees.
I guess that's pretty much what they can do given their financial state.

Of course, then they are torturing these numbers to ensure that everything adds up to Rs 20 lakh crore. I had done a thread on the RBI in the morning, to explain this.
More such examples in today's FinMin PC as well.

Take the reductions in TDS/TCS. It helps institutions that they don't have to pay a portion of the tax immediately. But they do need to pay it later.

Or take the case of Rs 90,000 crore being provided to DISCOMs as a loan against receivables. It's a loan. It provides liquidity. Helps, given the fact that power distribution companies owe a lot of money to power generation companies, which in turn owe a lot of money to banks.

But ultimately it's a loan, which needs to be repaid. And should be seen like that. This is not to say that this is not a good move. But the marketing bit really sucks.

Now, the biggest announcement today, the Rs 3 lakh crore, Collateral-free Automatic Loans for Businesses, including MSMEs to be provided by banks/NBFCs (not the government). The govt has provided a 100% credit guarantee. Its outflow will be limited to the extent of defaults.

Credit guarantee is a good move. But banks should not be forced to give out loans.
Again, adding the entire Rs 3 lakh crore to the package makes no sense. The govt is not giving out this money.

At best, the overall default rate of corporates can be used. As of Sep 30, it was around 17%. So, 17% of Rs 3 lakh crore works out to around Rs 50,000 crore. Given that these loans are only for companies with a turnover of less than Rs 100 crore, the rate of default will be lower

Again, something that was required. But the marketing sucks.

The govt is guaranteeing the borrowing of NBFCs, HFCs and MFIs with low credit rating, up to the extent of 20%. This will result in a liquidity of Rs 45,000 crore. This basically means that these firms will be able to borrow up to Rs 45,000 crore, if others are willing to lend.

Again, how do you add this to the overall thing? I mean, others may still not be ready to lend to these companies despite the government guarantee, given that the guarantee is up to 20%. Govt's commitment is up to the extent of max Rs 9,000 crore (20% of Rs 45,000 crore).

All pending refunds to charitable trusts and non-corporate businesses & professions shall be issued immediately.
Will be surprised if this is also included as a part of the package. It's money owed to people being returned.

All in all, as I have been saying for a while, the government's finances have been in a mess for a while now. Today's package and the way it has been structured reflects that. The govt's financial commitment to the package is minimal and that is understandable.

You will see the media add up all these big numbers and say a package of so many lakh crore has been offered. The number currently going around on WhatsApp forwards is Rs 6 lakh crore. I haven't bothered to add and check because I think the number doesn't mean anything.

It just fulfils the govt's need to show that they are doing something big.
It also fulfils's the need of the citizens to understand whether something is happening or not. To that extent it works.

Ah forgot this one.
PF contribution of both employer and employee will be reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months. This adds Rs 6,750 crore to liquidity apparently.

Basically, individual's money will be returned to him or her, in the hope that he or she will spend it now than wait for it to accumulate in the future. Wonder, how that can be added to the govt's economic package.

Finally, as I said in the beginning, through today's package announcements the government is trying to get other institutions to spend money, through various incentives and guarantees.

The trouble of course is largely on the demand side. In today's environment with one in four working Indians unemployed, I am not really sure how much the govt can do about this in the short-term.

I have written extensively about this in the past. Economic activity in India has been slowing down before covid-19 stuck and that will create more problems for us in the months to come.

In the end, economics doesn't really have all the answers, even economists and general junta and the government, would like to believe otherwise.
Now only if it was as simple as that.