Atmanirbhar Bharat 3.0: Prudent measures to boost job creation, stem capital destruction

The government is hoping that the green shoots visible in high-frequency data will further translate into a GDP uplift. And the latest measures - pragmatic and specific - will aid that

The Narendra Modi government continued its measured and targeted approach to providing fiscal support to various parts of the economy, with Finance Minister Nirmala Sitharaman announcing on Thursday the third part of the Atmanirbhar Bharat package. The focus of these most recent announcements was on job creation and supporting the most vulnerable and distressed sectors of the economy. 

This narrow but sector-focused stimulus allows the government to focus on two key priorities – job creation and preventing the destruction of existing capital stock or allowing regeneration where destruction has already taken place due to the pandemic. The measures undertaken today eschew the blunt-instrument approach but can quickly provide immediate benefits.

The Production Linked Incentives (PLI) programme for 10 sectors was already announced after the Cabinet approval on Wednesday. This programme expects to pull in new investments in consumption and export-heavy sectors, promoting ‘Make in India’. A similar programme for mobile phones and electronic components announced in April has got a good response. The government hopes that this fresh Rs 1,46,000-crore outlay will attract new manufacturing to India. 

The wage support programme announced on Thursday, coupled with the PLI incentives, is an interesting combination. The government will pay for Employee Provident Fund (EPF) contributions for two years for all new jobs created in the organised sector, where monthly wages are under Rs 15,000. For firms with more than 1,000 employees, the government will pay for the employer and employee contribution both, and for smaller firms the employee contribution alone. This should provide an additional incentive for the manufacturing firms seeking PLI benefits.

The government extended till March 2021 the Emergency Credit Line Guarantee Scheme (ECLGS), which has seen a good uptake so far, with two-thirds of the provided amount sanctioned in new loans. Additionally, according to the Kamath Committee report, firms in 26 distressed sectors will be able to borrow additional funds with a five-year repayment window along with a principal repayment moratorium for one year. This ECLGS 2.0 will be agnostic to the size of the firm and therefore allow any viable business facing balance of payments or working capital issues to stay afloat. The repayment terms will also manage the bank balance sheets getting stressed all over again in the aftermath of the pandemic.

Boosting infrastructure is one of the themes in the latest package. The Pradhan Mantri Awas Yojana – Urban (PMAY-U) will get an additional funding of Rs 18,000 crore over and above the Rs 8,000 crores already sanctioned. This is expected to create 7.8 million new jobs and also boost demand for cement and steel. This is also a good confidence-building measure, as hygienic living conditions in urban areas for migrant workers will goad them to return to their old jobs. The migrant workers can themselves get employment in construction of these urban tenements, thus providing a near-term as well as long-term reason to go back to cities which they fled for fear of the coronavirus pandemic. 

The National Infrastructure Investment Fund (NIIF) will be tasked with providing a financing of Rs 1,10,000 crore to infrastructure projects through its downstream funds. To facilitate this, the government will infuse Rs 6,000 crore as equity in NIIF, while the downstream funds will raise Rs 95,000 crore from the market. The government also expects other private players to bring in equity to NIIF. Presumably, NIIF will play a key role in financing projects under the National Infrastructure Pipeline, a five-year plan to make Rs 1,20,000 crore of capital expenditure. 

To unclog roads – another area of infrastructure development, the government has eased conditions related to earnest money deposits and performance security till the end of 2021. Typically, investments in roads has a multiplier effect of up to 7 times in the economy and this is another crucial area of job creation. According to our estimates, this measure should free up two to three months of working capital for private road developers. 

The middle class gets an incentive to buy homes, with the government permitting a difference of 20 per cent between the circle rates and agreement value, up from the current 10 per cent. This move will help builders clear their existing inventory in soft market conditions, and hence tide over their working capital issues. Of course this also means that developers will have to seal deals on lower prices; that will test their skin in the game. Developers have long asked for this concession under Section 43CA of the Income Tax Act, but they have at the same time been loath to adjust prices themselves. 

The government will also undertake additional capital expenditure to buy domestically produced defence equipment, create industrial infrastructure and promote green energy. This manufacturing capex will have a multiplier effect for the services industry and employment.

The measures announced on Thursday will cost the government a total of Rs 2,65,000 crore. The PLI programme, which forms the main fiscal component of today’s announcements will be spread over five years. 

The economic rebound from the debilitating impact of the Covid-19 pandemic seems stronger than what most analysts had predicted. The estimates for the fourth quarter gross domestic product (GDP) have already been upgraded by many institutions. The government will hope that the green shoots visible in the high-frequency data further translate into a GDP uplift. 

The measures announced on Thursday – pragmatic and specific – should help towards that cause.

Vivek Singh is additional private secretary to the finance minister, and Aashish Chandorkar is a public policy analyst and Pune-based author. Views are personal

The Narendra Modi government continued its measured and targeted approach to providing fiscal support to various parts of the economy, with Finance Minister Nirmala Sitharaman announcing on Thursday the third part of the Atmanirbhar Bharat package. The focus of these most recent announcements was on job creation and supporting the most vulnerable and distressed sectors of the economy. 

This narrow but sector-focused stimulus allows the government to focus on two key priorities – job creation and preventing the destruction of existing capital stock or allowing regeneration where destruction has already taken place due to the pandemic. The measures undertaken today eschew the blunt-instrument approach but can quickly provide immediate benefits.

The Production Linked Incentives (PLI) programme for 10 sectors was already announced after the Cabinet approval on Wednesday. This programme expects to pull in new investments in consumption and export-heavy sectors, promoting ‘Make in India’. A similar programme for mobile phones and electronic components announced in April has got a good response. The government hopes that this fresh Rs 1,46,000-crore outlay will attract new manufacturing to India. 

The wage support programme announced on Thursday, coupled with the PLI incentives, is an interesting combination. The government will pay for Employee Provident Fund (EPF) contributions for two years for all new jobs created in the organised sector, where monthly wages are under Rs 15,000. For firms with more than 1,000 employees, the government will pay for the employer and employee contribution both, and for smaller firms the employee contribution alone. This should provide an additional incentive for the manufacturing firms seeking PLI benefits.

The government extended till March 2021 the Emergency Credit Line Guarantee Scheme (ECLGS), which has seen a good uptake so far, with two-thirds of the provided amount sanctioned in new loans. Additionally, according to the Kamath Committee report, firms in 26 distressed sectors will be able to borrow additional funds with a five-year repayment window along with a principal repayment moratorium for one year. This ECLGS 2.0 will be agnostic to the size of the firm and therefore allow any viable business facing balance of payments or working capital issues to stay afloat. The repayment terms will also manage the bank balance sheets getting stressed all over again in the aftermath of the pandemic.

Boosting infrastructure is one of the themes in the latest package. The Pradhan Mantri Awas Yojana – Urban (PMAY-U) will get an additional funding of Rs 18,000 crore over and above the Rs 8,000 crores already sanctioned. This is expected to create 7.8 million new jobs and also boost demand for cement and steel. This is also a good confidence-building measure, as hygienic living conditions in urban areas for migrant workers will goad them to return to their old jobs. The migrant workers can themselves get employment in construction of these urban tenements, thus providing a near-term as well as long-term reason to go back to cities which they fled for fear of the coronavirus pandemic. 

The National Infrastructure Investment Fund (NIIF) will be tasked with providing a financing of Rs 1,10,000 crore to infrastructure projects through its downstream funds. To facilitate this, the government will infuse Rs 6,000 crore as equity in NIIF, while the downstream funds will raise Rs 95,000 crore from the market. The government also expects other private players to bring in equity to NIIF. Presumably, NIIF will play a key role in financing projects under the National Infrastructure Pipeline, a five-year plan to make Rs 1,20,000 crore of capital expenditure. 

To unclog roads – another area of infrastructure development, the government has eased conditions related to earnest money deposits and performance security till the end of 2021. Typically, investments in roads has a multiplier effect of up to 7 times in the economy and this is another crucial area of job creation. According to our estimates, this measure should free up two to three months of working capital for private road developers. 

The middle class gets an incentive to buy homes, with the government permitting a difference of 20 per cent between the circle rates and agreement value, up from the current 10 per cent. This move will help builders clear their existing inventory in soft market conditions, and hence tide over their working capital issues. Of course this also means that developers will have to seal deals on lower prices; that will test their skin in the game. Developers have long asked for this concession under Section 43CA of the Income Tax Act, but they have at the same time been loath to adjust prices themselves. 

The government will also undertake additional capital expenditure to buy domestically produced defence equipment, create industrial infrastructure and promote green energy. This manufacturing capex will have a multiplier effect for the services industry and employment.

The measures announced on Thursday will cost the government a total of Rs 2,65,000 crore. The PLI programme, which forms the main fiscal component of today’s announcements will be spread over five years. 

The economic rebound from the debilitating impact of the Covid-19 pandemic seems stronger than what most analysts had predicted. The estimates for the fourth quarter gross domestic product (GDP) have already been upgraded by many institutions. The government will hope that the green shoots visible in the high-frequency data further translate into a GDP uplift. 

The measures announced on Thursday – pragmatic and specific – should help towards that cause.

Vivek Singh is additional private secretary to the finance minister, and Aashish Chandorkar is a public policy analyst and Pune-based author. Views are personal