The Government of India announced a number of fiscal stimulus measures to address challenges to revive India’s economy in the wake of the COVID-19 pandemic crisis. The initiatives, labeled as ‘Atma Nirbhar Bharat Abhiyan’, aim to make India self-reliant, address challenges faced by migrant workers, farmers, and bring in privatization measures to strengthen various sectors. The entire stimulus measures come to around Rs. 20, 97,053 crores.
Tranche I – Rs 5,94,550 crore
The first tranche of the economic package focuses on supporting MSMEs worst hit by the lockdown to contain the spread of coronavirus pandemic in the country. A reduction in the TDS & TCS rates, reduction in the PF contribution for employees & employers, return filing deadline extension are some of the measures introduced.
MSME related measures
Emergency collateral-free, automatic loans for MSMEs worth Rs. 3 lakh crore from Banks and NBFCs will be made available. The emergency credit line to business will be 20% of all outstanding credit as of February 29, 2020, with a tenure of 4 years and a 12-month moratorium on the principal payment. This scheme is available until 31st October 2020. There will be no guarantee fee, no fresh collateral required. 45 lakh MSMEs will resume business activity from this move.
Stressed MSMEs will get Rs 20,000 crore of subordinate debt. Under this scheme, promoters will be given debt by banks, which will then be infused into the MSME as promoter equity. The government will buy the investment-grade debt of non-banking finance companies (NBFCs), including HFCs and MFIs (micro-finance institutions) to the tune of Rs 30,000 crore.
MSMEs can avail benefits of additional equity infusion of up to Rs 50,000 crore through “Fund of Funds”. This “Fund of Funds” will be set up with a corpus of Rs 10,000 crore and will be operated through a “Mother Fund” and a “Daughter Fund”. This move will help in expanding the universe of MSMEs and encourage them to get listed on stock exchanges.
The government has expanded the definition of MSMEs, increasing the threshold limit for investment in these units. Per the revised definition announced on 13th May 2020, any firm with investment up to Rs 1 crore and turnover under Rs 5 crore will be classified as micro. A company with investment up to Rs 10 crore and turnover up to Rs 50 crore will be classified as small and a firm with investment up to Rs 20 crore and turnover under Rs 100 crore will be classified as medium. On 19th May 2020, this was further revised, from Rs 20 crore investment to Rs 50 crore and turnover from Rs 100 crore to Rs 200 crore.
The change in definition will help many units to expand without losing the MSME tag. The new definition of MSME based on investment as well as turnover will not only benefit this sector but also provided clarity in the form of a long-awaited definition clause. The manufacturing and services-based MSMEs will now have the same benefits The downside here is that the MSME benefit is extended to only up to ₹100 crore turnover which was previously ₹250 crores.
Stressed and NPA units will receive some much-needed backing and the loans to standard units will see them through the pandemic induced shortage in working capital. The proposal for infusion of equity into viable MSME units is laudable and the “no global tenders” up to ₹200 Crores of procurement is also a step in the right direction given the focus on a “Self-Reliant India”. An E-market linkage will provide a digital platform for the MSMEs to sell their wares in the absence of a Pandemic induced closure of trade fairs and exhibitions across the world.
The special liquidity scheme of ₹30,000 crores for NBFC/HFC and MFIs will help to raise money in the debt market and investment will be made in both primary and secondary market transactions in investment-grade debt paper of NBFCs, HFCs, and MFIs which will create substantial confidence in the market. Similarly, the announcement of ₹45,000 cr infusion through a partial credit guarantee scheme will enable liquidity to NBFC sectors. It is hoped that the measures announced for NBFCs, including guarantees offered by the Government of India will ultimately trickle down to the MSMEs as the NBFCs and MFIs cater mainly to MSMEs.
The Discoms stand to benefit with a fairly substantial injection of liquidity and clearance of all their receivables. Again, whether the government’s expectation that this benefit is passed further down will materialize or not, remains to be seen. The Real Estate Sector will heave a sigh of relief with the “Force Majeure” clause application being allowed for the Pandemic. An extension of up to 6 months for registration and completion will definitely help them in terms of timelines especially in the light of the move of migrant labor and possible delays in their return. Government contractors have been offered similar relief from GOI agencies such as Railways, Highway Authorities, etc.
To provide more funds at the disposal of the taxpayers, the rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts shall be reduced by 25% of the existing rates. This will make available liquid funds of around Rs. 50,000 crores. The tax dispute resolution scheme of Vivad Se Vishwas stands extended till 31st December. The interesting announcement is that all pending refunds to non-corporates are to be issued immediately which will help taxpayers get their own outstanding money from the Government. Extension of due dates will enable better compliance.
PF contribution of both employer and employee will be reduced to 10%, from 12%, for all establishments covered by EPFO for the next three months. This will provide relief to about 6.5 lakh establishments covered under EPFO and over 4.3 crore employees.
India remains the largest economy next only to USA, China, UK, Japan, and Germany but the per capita income is low. Given the lack of abundant financial resources, the government is attempting a delicate juggling act trying to meet various sectoral demands while maintaining financial discipline in these hard times. The first tranche indicates a good step in this direction.
Major announcements by the Finance Minister as part of Tranche II on 14th May 2020:
- Free food for the urban poor & migrant laborers for 2 more months
- One Nation, One Card, One Ration – national portability of ration cards
- Affordable rental accommodation under Pradhan Mantri Awas Yojana
- Working capital loans for street vendors (up to INR 10,000)
- Emergency working capital fund as a credit to small & marginal farmers of up to INR 30,000 crore
Tranche II – Rs 3,10,000 crore
The second tranche of stimulus measures is aimed at migrant workers and street vendors. The FM announced a “One Nation, One Ration (card)” technology-driven system which would enable a person to get their food provision in any part of the country by using their ration card. This is indeed a welcome move by the government as it will aid migrant workers’ access to the Public Distribution System (PDS). The government will also extend benefits to non-cardholders by providing them with 5kg of grains and 1 kg of Chana per family for the next two months.
There is also a proposal to create an affordable rental housing scheme for migrant workers via a Public-Private Partnership (PPP) model. This will ensure that there is a roof over the heads of all people at all times.
To provide benefit to the small traders who have obtained a credit limit under the Shishu scheme of Mudhra loans, the government has rolled out an interest subvention of 2% for all prompt payers for a period of 12 months. This may provide a small benefit to the traders during this difficult time.
While this may help the street vendors at large to resume activities, there may be some practical challenges faced by adequate identification of street vendors, lack of sufficient data, and the agency through which this benefit will be passed on to them.
For the lower-middle-income class with an annual income of between ₹6 Lakhs – ₹18 Lakhs, the government now proposes to extend the Credit Linked Subsidy Scheme (CLSS) for affordable housing till 31 March 2021. Apart from the affordable housing created under this scheme, we can also reasonably expect this scheme to create a demand for other ancillary products such as cement, steel, etc, and thereby provide adequate employment opportunities.
A special credit facility of Rs 5,000 crore was announced to support around 50 lakh street vendors who will have access to an initial Rs 10,000 working capital. States are also permitted to fund food and shelter facilities to migrant workers from their Disaster Response Funds costing Rs 11,000 crore to the Centre. Rs 2 lakh crore of concessional credit to uplift farming activities will benefit 2.5 crore farmers. Those in animal husbandry and fisheries will also be included.
Certain areas of critical importance have been addressed by the Finance Minister in the first two tranches. However, it must be noted that most of today’s schemes are the extension of the existing measures that seem to have been refurbished and presented. Concern also remains about the extent of these measures trickling down and benefiting the common man. Street vendors or migrant workers typically lack awareness so the question would be who will bell the cat? They need to know a scheme exists before they can utilize it. Other practical challenges might also be encountered such as lack of address proof, sufficient documentation, etc. As they say, the proof of the pudding lies in the eating. One must wait and watch the overall and trickle-down effects of these measures on the targeted sectors.
Major announcements by the Finance Minister as part of Tranche III on 15th May 2020:
- Amendment of Essential Commodities Act (1955) to tackle abundant crop
- INR 500 crore towards supporting beekeeping initiatives
- Rs 500 crore to support supply chain disruption of fruits & vegetables
- INR 10,000 crore to encourage export of local products for micro-enterprises
- Legal framework development supporting farmers to fix their own prices
- INR 10,000 crore to strengthen farm gate infrastructure
- Rs 20,000 crore for development of marine & inland fisheries
- INR 4,000 crore to support farmers growing herbs & medicinal plants
- INR 15,000 crore to support and develop dairy & cattle-feed infrastructure
Tranche III- Rs 1,50,000 crore
The Finance minister announced the third, fourth, and final tranches of the ₹20 Lakh crore economic package spanning critical sectors of the economy including Agriculture and Infrastructure. Measures were also included for the privatization of various activities and improving the ease of doing business. As we enter the fourth stage of the lockdown with lesser restrictions than its predecessors, importance is being given to reviving the economy from what seems to be the steepest slowdown since the great depression of the 1930s.
₹1 Lakh crore is proposed to be allocated towards Agriculture Infrastructure. Apart from this, the budget has been allocated to help store the product until it is able to be sold in the market. In the current scenario where Indian agriculture on an aggregate level has not been profitable mainly due to environmental conditions such as erratic monsoons, warehousing, and storage problems, this proposal will enable the farmers, in the long run, to ensure that perishables are not wasted and are adequately stored until sale.
Several other proposals were announced to help various other initiatives such as beekeeping, herbal cultivation, animal husbandry, fisheries, and the formalization of the micro food enterprises. The said proposals will benefit the larger variety of various sectors, one has to wait and see how the benefits will reach the intended beneficiaries and how they will be made aware of these policies.
Major announcements by the Finance Minister as part of Tranche IV on 16th May 2020:
- Privatization of coal mines
- FDI limit in defence equipment manufacturing to be increased from 49% to 74%
- Augmented private investments in airports
- The thrust towards making India a maintenance, repair & overhaul (MRO) hub for civil & defence aircrafts
- Privatization of power distribution companies in Union Territories
- Increased private participation in the space sector
Major announcements by the Finance Minister as part of Tranche V on 17th May 2020:
- Decriminalization of technical & procedural compliance violations under the Companies Act
- Additional allocation of INR 40,000 crore to MGNREGS
- COVID related debt defaults to be excluded from definition of ‘default’ under IBC
- Foreign jurisdiction listing of company securities permitted
- New Public Sector Enterprise Policy to allow private sector operations in all sectors
- Increased allocation towards setup of infectious diseases wards and public health labs at district & block levels
- Digital education scheme to be launched for schools
- Borrowing limit increased from 3% to 5% of GSDP for state spending
Tranche IV and V– 48,100 crore
The fourth tranche of the Rs 20 lakh crore stimulus package focuses on eight sectors including coal, minerals, defense production, air space management, airports, MRO, distribution companies in UTs, space sector, and atomic energy. Ease of Doing Business measures, such as Mining Plan simplification, will be considered. It is expected to increase annual production by 40%. 500 mining blocks will be offered through an open and transparent auction process under this composite regime. Private participation in the space sector will also be encouraged, along with the formulation of a policy for private players.
The fourth tranche concentrated on policy reforms. India has the fifth largest reserve of coal in the world and still imports coal from other countries. To make India self-reliant on coal production and coal mining, the finance minister has proposed that private parties could also compete in the bids towards coal mining activities on a revenue-sharing basis. This move will help to generate employment opportunities, increase government revenue, meet domestic demand, and also provide access to the sophisticated mining equipment and technology that the private players possess.
Other major reforms that were proposed as a part of the fourth tranche were making India self-reliant in the areas of defense manufacturing, making India a global hub for Aircraft Maintenance, Repair, &Overhaul (MRO), and increasing the participation of private players in space-related activities. Since several defense-related activities will now be exposed to private parties, one hopes the government will also take adequate precautions to ensure that security aspects are not compromised at any cost.
In order to enhance the domestic manufacturing of defense equipment, the government will make a list of weapons and platforms that will not be imported and, the list will be increasingly expanded to uplift local manufacturing. Also, the government’s decision to open up air space for commercial flights would help airlines save about Rs 1,000 crore in terms of operational costs.
The finance minister expressed that several of the reforms and relief measures are part of the recent budget as well as the extension of the same and it will benefit the nation at large. As a part of the final tranche, the finance minister proposed many governmental reforms and enablers towards different sectors such as healthcare, education, ease of doing business, among others.
The FM has proposed increased investments in the health sector such as health and wellness centers in Urban and Rural areas and integrated public health labs in all districts and block-level labs and public health units to manage the pandemic. Recently, the WHO has said that the virus may be there with us for a reasonably long period. It thus becomes imperative to ensure that we are geared up for all contingencies and the government has rightly thought about this and now investments are proposed to be made accordingly. The timelines and execution details need to be understood.
When migrant workers will come back to work?
₹40,000 Crore allocated towards MNREGA will substantially help to reduce the burden of the unemployed rural population. Though, this is a great step by the government to ensure the well-being of the migrant workers, various industries in the country, especially the construction, textile industries are heavily dependent on the migrant workforce to come back to work. The delay in the return of migrant labor will not only have an adverse impact on the cost of production but also on the completion timelines as well.
Another announcement the finance minister was that the default during the time of COVID for the companies will not be considered as default under the Insolvency and Bankruptcy Code (IBC) and increased the threshold limit to initiate proceedings under IBC from Rs 1 lakh to Rs 1 cr which will be a good relief during this testing time.
The government is leveraging technology in the education space as well, providing separate channels for each class from Class 1 to 12 and special e-content for students with visual and hearing impairment among other announcements related to the education sector. These steps will not only help during the pandemic but will also ensure that the quality of education imparted is consistent across the country even after the crisis.
Ease of doing business:
Decriminalization of the Companies Act is an extension of what was announced during the Union budget and FM indicated that same will be brought by way of an Ordinance.
Medically COVID does not have a cure as it is a virus – health care professionals provide adequate support to the sick and then the human immune system does the rest. For example, in a critically ill patient, the ventilator takes the burden off the lungs and allows the lungs time to recover while it functions by providing oxygen to the body instead of the lungs. Some patients need this level of support while others need oxygen and still, others may only be suffering from fever and cough.
The analogy used here is that fiscal stimulus measures could be compared to the ventilator. A monetary stimulus is akin to nutritious food given to ensure that the patient gets strength from the nutrition and improved immunity. Exercise and physiotherapy ensure that the physical body of the person i.e., his muscles and bones are kept strong. This is akin to the structural and policy reforms announced by the government. All three are vital to living a healthy, long life.
Several policy reforms, fiscal and monetary reforms have been proposed by the government as a part of the package, and we will have to wait and see how the benefits of these reforms percolate to the common man, thus reviving the economy.