Sops for farmers, senior citizens and expectant moms but haze on normality

NEW DELHI: The chef who had tossed a new confection of digital payments by vaporising most of the country's cash 50 days ago chose to open a soup kitchen of welfare benefits on the last day of 2016. Prime Minister Narendra Modi failed to live up to the hype built around his New Year's Eve speech that many expected would provide the low-down on the demonetisation drive that he unleashed on November 8. In an uncharacteristically low-key speech, Modi trundled out a grab-bag of subsidies for the poor and middle classes, farmers, small businesses, would-be mothers and senior citizens.

The Prime Minister steered clear of committing himself to a timeframe on restoring normality. "My effort is to take the banking system to normalcy as fast as possible in the new year," he said. Expectations had welled up ahead of Modi's speech, with the poor hoping to hear some news about money being stuffed into their digital wallets and Jan Dhan accounts. But many saw the sops as either too trivial or overblown in a bid to woo voters ahead of elections in states like Uttar Pradesh and Punjab. "The PM has stolen the thunder from Mr Jaitley's budget by declaring his social sector budget ahead of the date," said N.R. Bhanumurthy of the National Institute of Public Finance and Policy, a research body. The following are some of the measures announced by Modi and their possible impact. Measure: Interest subvention (subsidy) of 4 per cent for the urban middle class for housing loans up to Rs 9 lakh and 3 per cent for loans up to Rs 12 lakh taken in 2017. It falls under the Prime Minister's Awas Yojana whose primary target is all low-income groups and economically weaker sections. Expected impact: Likely to help banks swamped under a deluge of interest-bearing deposits. "The initiative will enable us to serve and provide affordable home loans to millions in smaller cities," said Gagan Banga, MD, Indiabulls Housing Finance Ltd. It is also expected to pep up sectors such as steel, cement and construction, hit hard by demonetisation. However, economists pointed out that the biggest problems for these sectors were the lack of working capital and competition from cheap imports. Measure: For rural areas, the Prime Minister announced an interest subsidy of 3 per cent for housing loans up to Rs 2 lakh and announced a 33 per cent increase in the number of houses to be built under the Prime Minister's Awas Yojana. Expected impact: The outlay for 2016-2017 for rural housing under the scheme is Rs 10,500 crore. The number of houses to be built is 7.5 lakh. The increase means another 2 lakh houses. An analyst said this was "too little, given that the need of the hour by the government's own estimate stands at 2 crore rural houses". Measure: A guaranteed interest payout of 8 per cent on deposits of up to Rs 7.5 lakh made by senior citizens. These deposits would have a fixed term of 10 years. Expected impact: Some senior citizens may welcome this scheme but a fixed tenure of 10 years may not be very attractive. In recent years, small savings schemes have cut the longest tenures to five years but the maximum interest rate is not more than 7.5 per cent. Many have been complaining about falling income in the twilight of their lives. Pronab Sen, former chairman of the National Statistical Commission, said: "Higher prices often negate the best income protection scheme but still this is a good measure." Measure: A 60-day interest moratorium on crop loans. The government will also provide an additional Rs 20,000 crore to the state-run Nabard that will help pay for the interest subvention on the loans to be given out by rural banks. Modi promised to turn all kisan credit cards issued to farmers into RuPay cards so that the cards could be used to swipe in payments or swipe out purchases of seeds and other inputs. Expected impact: "These are mere extensions of existing schemes and address the sentiments of those hit by demonetisation," said Sen. Measure: Doubling the credit guarantee given to micro, small and medium enterprises to Rs 2 crore. Banks provide the credit and the government guarantees its return. The guarantee scheme was also extended to loans given by NBFCs. The credit limit for small industry is being raised to 25 per cent of the turnover from 20 per cent. Banks have been told to increase working capital loans from 20 per cent of turnover to 30 per cent for enterprises that transact digitally. Expected impact: Analysts said the measures would help but were not sufficient to put small businesses hit hard by the demonetisation back on their feet. Modi did not explain how the government would balance its books against the new spending. India's fiscal deficit during the first eight months till November was Rs 4.58 trillion, or 85.8 per cent of the budgeted target for the financial year ending next March. The government has very little room for additional spending.