Govt unveils Rs 20 trillion economic stimulus package

Finance Minister, Nirmala Sitharaman on May 13 under the government’s Atmanirbhar Bharat Abhiyan announced the first round of announcements of what it promises will be a Rs 20 lakh crore  stimulus package to restart the economy hit hard by the nationwide lockdown.

Micro, small and medium enterprises (MSMEs), power distribution companies, non-banking financial companies (NBFCs) and housing finance companies, and real estate developers formed the central agenda.

These companies were offered credit guarantee schemes and collateral-free debt, a special liquidity scheme to absorb risky commercial paper, equity infusions and generous extension of deadlines—all totalling almost Rs 6 lakh crore. But the government shied away from injecting any direct cash into the system.

“Essentially, the goal is to build a self-reliant India that is why the Economic Package is called Aatma Nirbhar Bharat Abhiyaan. The pillars on which we seek to build Aatma Nirbhar Bharat Abhiyaan, are land, labour, liquidity and law. 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 Aatma Nirbhar Bharat,” said Nirmala Sitharaman, Union Minister of Finance & Corporate Affairs.

INDUSTRY RESPONDS

“Finance Minister’s announcement is in line with the government’s aim to provide the necessary impetus to economic growth and build a ‘self-reliant’ India. We welcome the announcement of all pending payments within 45 days from PSEs to MSME sector. The telecom industry has unutilized GST input tax credit over Rs 35,000 crore for which the sector has repeatedly demanded refund.

Moreover, the total outstanding from PSUs is amounting to approx. Rs 20,000 crore since long. We hope the Hon’ble Finance Minister, Smt. Nirmala Sitharaman, in the course of next few announcements would give similar relief to the sector that has immensely contributed to keeping the country connected during last 25 years and has kept 1 bn people connected  during the current lockdown situation.”

―Rajan S Mathews, DG, COAI.

“The 20 lakh crore economic package will definitely give the impetus to the economy, industry and society; however, as every business is thinking of re-inventing itself to be future-ready, it is our responsibility as a country to define that ‘re-invent India’ strategy, define the role of each of the pillars (economy, infrastructure, technology-driven system, vibrant demography and demand) laid down by the government, break down old policies and re-write collaboration between the private and public sector. The government is playing the role of an investor to create physical and digital infrastructure, create global standard academic institutions in Artificial Intelligence and data science, nurture local firms to create telecom infrastructure, cyber security global leaders. There was an independence in 1947; now that the fuel has been provided, let’s make 2020 the year when we get independence from a non-digital world to make India truly a global digital leader in every aspect, so that both, the common man and businesses from India come out resilient and self-sufficient.”

―CP Gurnani, MD & CEO, Tech Mahindra

“The Government has clearly gone by the premise that the “devil lies in the details.” The content of this as well as earlier tranches of the stimulus package clearly demonstrates that detailed assessment has been done both in terms of specific business segments (MSMEs, NBFCs / HFCs etc., DISCOMS) which have been hit by the pandemic, estimated number and profile of market participants in each of these vulnerable segments and nature of liquidity & other problems which they are facing. Based on this analysis, the nature and quantum of Government support has been worked out.

This tranche of the stimulus highlights the following broad directions:

1. Channelizing a significant part of the Government financing support for vulnerable segments like MSMEs and NBFCs / Housing Finance Companies in the form of credit or investment guarantees to achieve a multiplier effect and also limit the actual outflow to the extent of default.For MSMEs, (a) 100% credit guarantees have been extended to loans of up to Rs. 3 Lakh Crores for non-stressed MSMEs and (b) partial credit guarantees for subordinate loans to stressed MSMEs which may be in the NPA category. For NBFCs, the Rs. 30,000 Crores Special Liquidity scheme envisages 100% Government Guarantees for investment grade papers and the Rs. 45,000 Crores Partial Credit Guarantee scheme provides for Government Guarantees for the first 20% of loss for bonds / commercial pepers rates AA and below. The intent is for these guarantee schemes to work in tandem with the increased liquidity due to the RBI measures announced earlier so that Banks and Financial Institutions come forward and extend financing support rather than parking their funds with the RBI through reverse repo transactions.
2. Clear focus on structural reforms and ease of doing businessas is evident from the measures around (i) increasing the investment and turnover thresholds for MSMEs to enable them to grow bigger; (ii) Advising the State Governments and / or their Real Estate Regulatory Authorities to leverage force majeure provisions for providing an additional 6 months to Real Estate companies and exempting them from the need to obtain a fresh registration certificate or renegotiate contracts with their buyers; (iii) Allowing contractors involved in highway / infrastructure construction to avail a standstill period of 6 months without any penalties.
3. Ensuring additional liquidity in the hands of employees and motivating employers to retain employees while easing their liquidity requirementsthrough measures like extending the scheme for bearing both employers and employees EPF contribution for another 3 months for smaller companies and reducing the employer’s contribution rate from 12% to 10% for other companies.
4. Intent to make economic benefits conditionalas in the case of Central Public Sector Generation Companies giving rebates to Discoms subject to them passing on the benefits to consumers.

Going forward, we can expect the above principles to be leveraged for other sectors and areas as well.

―Arindam Guha, Partner, Leader – Government and Public Sector, Deloitte India .

―CT Bureau