Indian Finance Minister Nirmala Sitharaman had announced on Monday (June 28) a financial package which included bank credit on concessional interest rate to two sectors, health and tourism, amounting to Rs 1.10 lakh crore, in the wake of the destructive COVID-19 second wave, which lasted from the middle of April to the end of May, with daily infection rates reaching a peak of 400,000 per day, and the number of daily deaths due to COVID-19 were more than 3000.

As the vaccination rate increased considerably, with India managing to vaccinate more 300 million out of the 900 million adult population, the fury of the pandemic has subsided somewhat despite fears of a third wave lurking on the horizon. The Modi government is confident that it would be in a better position to manage the pandemic after the bitter lessons learned through the disastrous second wave. The financial package then looks forward to a time when normal activity will be picked up.

The optimism of the government is reflected in the fact that it has allocated about Rs 50,000 crore to the tourism sector, making loans available to individual tourist guides as well as the big travel operators, called in the government’s press release as tourism stakeholders. While the tourist guides can borrow up to Rs 100,000, the tour operators have access to credit for Rs 10 lakh. Ms Sitharaman has also announced that the visa fees for the first 500,000 arrivals will be written off.

Rebound of tourism will not be quick as it depends on many factors like resumption of international flights, the hospitality industry coping with COVID-19 compliant protocols. The other sector where the government has marked funds is the health sector, especially for investment in health infrastructure like increasing bed strength in hospitals and providing critical care in the form of oxygen and ventilators. Here too the government’s offer comes in the shape of concessional bank credit.

The question remains whether entrepreneurs will have the stomach to borrow and set up critical health care facilities, especially in paediatric medicine. But the government recognises the fact that there is needed for greater investment in building health infrastructure, and it wants to encourage entrepreneurs to enter the field. Modi government’s economic philosophy hinged on the idea of encouraging entrepreneurs through easily available bank credit instead of government investing directly in the field. But the challenge for the government lies in the fact that risk appetite among entrepreneurs is not robust enough, and understandably so.

Government’s hands are tied too. Thanks to good harvest and overflowing food grains buffer stocks, Prime Minister Modi’s scheme of free ration which includes five kilogrammes of wheat per family per month to the poor under the National Food Security Act (NFSA) has provided much succour to the needy. But the government has not been able to do much beyond this. It hopes that economic activity like house construction in urban areas would revive and the unskilled poor will get back to work.

Though many economists have been urging the government to roll out a stimulus package through cash transfers as a way of reviving demand and consumption, Prime Minister Modi and Finance Minister Sitharaman have resisted the temptation. They seem to believe that economic revival must happen in a constructive fashion through legitimate economic activity and that it would not be right to create a false demand through an easy cash stimulus which would not last. The revival of the economy now depends on the retreat of COVID-19, and this depends on vaccinating at least 70 per cent of the population to create the herd immunity.