Finance minister Nirmala Sitharaman on Wednesday unveiled a ₹5.9 lakh crore stimulus package which includes ₹3 lakh crore collateral-free loans to small businesses, ₹75,000 crore liquidity infusion in non-banking finance companies (NBFCs), ₹90,000 crore financial support to power discoms and ₹50,000 crore cash in the hands of taxpayers.
The allocation is part of the ₹20 lakh crore ‘Atmanirbhar Bharat Abhiyan’ (Self-Reliant India Movement) announced by Prime Minister Narendra Modi on Tuesday that combines policy reforms with fiscal and monetary measures.
While a finance ministry presentation noted financial implications of the schemes announced on Wednesday at ₹5,94,250 crore, Sitharaman declined to comment on the numbers immediately. She, however, said the government recently raised its borrowing limits to part fund the measures. The government on Friday raised its market borrowing estimate by a staggering ₹4.2 lakh crore to ₹12 lakh crore in 2020-21 to make up for an expected shortfall in revenues because of prolonged lockdown since March 25 that has crippled the economy.
“Beginning today, for the next few days, I shall be coming here with the entire team of the ministry of finance to detail the Prime Minister’s vision for Atmanirbhar Bharat laid out by the Prime Minister yesterday,” Sitharaman said.
The first package of ₹1.7 lakh crore was announced by the finance minister on March 26, followed by monetary measures taken by the Reserve Bank of India (RBI) to revive the economy, which has been battered by a prolonged lockdown since March 25 to check the spread of Covid-19 pandemic. The lockdown will continue till May 17, and may be extended in some parts of the country.
Sitharaman said the focus of the measures announced on Wednesday is “getting back to work”. The fiscal and policy support will enable employees and employers, businesses, especially micro, small and medium enterprises (MSMEs), to get back to production and workers back to gainful employment, she said.
She said a ₹3 lakh crore emergency working capital facility is provided to businesses in the form of term loans at a concessional rate of interest. “This will be available to units with up to ₹25 crore outstanding and turnover of up to ₹100 crore whose accounts are standard. The units will not have to provide any guarantee or collateral of their own,” she said. The amount will be 100% guaranteed by the federal government benefiting more than 4.5 million MSMEs, she added.
Besides, the government announced five other measures to support MSMEs – ₹20,000 crore subordinate debt-based scheme for stressed MSMEs, setting up a ₹50,000 crore ‘fund of funds’ with a corpus of ₹10,000 crore, redefining MSMEs to allow growth of units, disallowing global tenders up to ₹200 crore in all government purchases and providing e-market linkage to boost sales.
In order to infuse liquidity in the system, particularly for small businesses and rural sector enterprises, the government announced a ₹30,000 crore special liquidity scheme for NBFCs, housing finance companies (HFC) and micro-finance institutions (MFIs). The scheme will allow investment in primary and secondary market transactions in investment grade debt paper of NBFCs, HFCs and MFIs, which will be 100% guaranteed by the Union government. Another, ₹45,000 crore partial credit guarantee scheme is also planned to cover the borrowings of lower rated NBFCs, HFCs and MFIs. The government will provide a 20% first loss sovereign guarantee to public sector banks.
The MSME sector is, however, not enthused, said Vinod Kumar, the honorary president at the India SME Forum. “There’s nothing for unbanked MSMEs... Only 7% of MSMEs are using banking today. Those with no limits will close down. All the guys who have limits have already given collateral, so there’s no need for physical collateral guarantee of the additional amount only. It’s a no starter. The fund of funds has already been around, the only hope is from the NPA [non-performing asset] and stressed fund... that too, lets see, how many banks roll that out.”
Sitharaman also announced some reliefs to businesses and individual taxpayers. Measures included expeditious refunds to charitable trusts, non-corporate businesses, proprietorship, partnership, limited liability partnership (LLP) and cooperatives.
She said the rates of tax deduction at source (TDS) and tax collected at source (TCS) has now been reduced for all non-salaried payment by 25% of the specified rates for the remaining period of FY 2021, which will provide liquidity to the tune of ₹50,000 crore. However, the tax liability remains the same.
In order to reduce tax compliance burdens, the due date of all returns for assessment year 2020-21 will be extended to November 30, 2020, she said. The date for making payment without additional amount under the ‘Vivad se Vishwas’ scheme will be extended to December 31, 2020.
Sitharaman extended the three-month employees provident fund (EPF) support to small businesses and organised workers by another three months up to August 2020. The scheme provides for government’s contribution in 12% of salary each on behalf of both employer and employee to EPF in enterprises employing fewer than 100, with 90% earning less than ₹15,000 a month. This involves 7.2 million employees and will benefit them to the tune of about ₹2,500 crore.
Besides, she announced reduction in statutory provident fund contributions of both employers and employees (in companies other than those benefiting from the other EPF incentive) to 10% each from 12% for all establishments covered by Employees Providend Fund Organisation (EPFO) for the next three months. “This will provide liquidity of about ₹6,750 crore.”
In order to provide relief to real estate projects, state governments and real estate regulators are being advised to invoke the force majeure clause, she said. “The registration and completion date for all registered projects will be extended up to six months and may be further extended by another 3 months based on the state’s situation,” she said.
Similarly, contractors involved in public sector projects have been given additional time. “All central agencies like Railways, Ministry of Road Transport and Highways and CPWD will give extension of up to 6 months for completion of contractual obligations,” she said.
DK Srivastava, chief policy adviser at consultancy firm EY India, said, “Nearly 30% of the ₹20 lakh crore stimulus package envisaged in Prime Minister’s speech, that is about ₹6 lakh crores, has been covered in today’s Finance Minister’s briefing. The focus is largely on the MSMEs who may be facing different sets of issues.”
“This package is based largely on credit guarantee provisions implying minimal direct cost for the central exchequer which may be just a small fraction of today’s package. Any additional cost would only be on account of defaults, the burden of which may arise only in future years. In the case of the power sector, the burden of bearing the default is in fact, on the state governments.”
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