Small fiscal stimulus in the second package amid festival seasons

Adds little to earlier Rs 20 trillion package, fiscal cost is modest against Rs two trillion in earlier one; PSE policy announced earlier yet to be detailed, farm bills enacted

While all eyes were on the government's festive season package to spur the demand, it chose the fiscally prudent path and tried to stimulate demand through capex and by incentivising its own employees. The private sector is not bound to hop on board but if it does, the package will cross Rs one trillion and boost consumption of items such as water coolers, refrigerators, TV, mixers, vacuum cleaners and hair dryers, without much fisal cost to the government. 

The Centre was cautious due to the hit to the exchequer its earlier package delivered. Though the size of the  package was over Rs 20 trillion, including liquidity and other measures by RBI, the fiscal cost was at most a tad over Rs two trillion. Earlier packages included reform measures and other policy changes, apart from stimulus. 

Monday's package was broadly the second announced by the government since Covid hit the country. Though  the first was launched on May 13, some parts came earlier as well. Here are the details of packages announced by the government.

March 24:

i) Deadline for filing tax returns extended by three months beyond March 31. 

ii) Charges removed for three months for debit card holders withdrawing cash from ATMs of other banks, minimum balance fees waived.

iii) The mandatory requirement of holding meetings by the board of the companies extended by 60 days for the next two quarters, while applicability of Companies (Auditor’s Report) Order, 2020, deferred by a year.

March 27

Rs 1.7 trillion food security and income-transfer package announced for the urban and rural poor:

a) 5 kg rice/wheat free for 800 mn beneficiaries

b) Each farmer to be given Rs 2,000 under PM Kisan in April

c) Outlay from FY21 allocation of Rs 75,000 cr 

d) States told to utilise Rs 31,000 cr construction workers' welfare cess fund

e) Rs 50 lakh medical insurance for essential service providers, medical personnel, etc

f) MNREGA wages to be increased by Rs 20. Additional benefit of Rs 2,000 per worker

g) Free gas cylinders for three months under Ujjwala scheme

May 13:

Stimulus measures of about Rs 5.94 trillion to provide relief to various constituents of the Indian economy such as 

micro, small, and medium enterprises (MSMEs); taxpayers; non-banking financial companies (NBFCs); power distribution companies; the real estate sector; organised sector employees; and contractors working with the government.

ii) Immediate fiscal impact of Wednesday’s announcements could be less than Rs 20,000 crore, though analysts differ on that.

ii) The most important measure was a Rs 3-trillion credit guarantee fund for collateral-free automatic loans for MSMEs. As on September 10, an amount of Rs 1.63 trillion sanctioned and Rs 1.18 trillion disbursed. 

iii) A Rs 20,000-crore subordinate fund for stressed MSMEs, and a Rs 50,000-crore equity infusion “fund of funds”.

iv) Definition of MSMEs to be altered (done subsequently)

v) Global participation in government procurement tenders for up to Rs 200 crore disallowed

vi) Deadlines for tax assessments, income-tax returns, and 'Vivaad se Vishwaas' scheme extended

vii) Pending refunds to charitable trusts and non-corporate businesses to be made immediately

viii) Statutory provident fund contribution of employers and employees  reduced to 10 per cent each from the existing 12 per cent for all establishments covered by the Employees’ Provident Fund Organisation for the next three months. For the state-owned companies, this was applicable for the employees, but the employers will continue to make 12 per cent contribution.

ix) Rs 30,000-crore special liquidity scheme for NBFCs, housing finance companies (HFCs), and micro-finance institutions (MFIs). As many as 37 proposals involving an amount of Rs 10,590 crore approved as on September 11. 

x) PFC and REC to provide Rs 90,000 crore of liquidity for power discoms, and said that the government and PSUs would extend the contract period for various contractors by up to six months.

May 14:

A Rs 3.16 trillion support for vulnerable sections, including migrant workers, farmers, tribals, street vendors, and the middle class. However, fiscal cost to be much less at around Rs 10,000 crore.

a) 5 kg of grain — either wheat or rice — per person and 1 kg of “chana” per family a month for two months for workers not enrolled under the National Food Security Act or states food schemes. The Centre will take a hit of Rs 3,500 crore for this measure, which will help 80 million migrants. 

b) a one-nation-one-ration card scheme announced to cover 83 per cent of workers who have ration cards or 670 million beneficiaries by August this year. The scheme is in the works. All card holders to be covered under the scheme by March next year.

c) Scheme for providing houses at affordable rent for migrant workers. Under the scheme, government-funded houses in cities will be converted into housing complexes through private public partnership. Besides, the government will incentivise manufacturing units, state government agencies, and others to develop housing complexes on their land.

d) 25 million farmers to be provided Rs 2 trillion concessional credit through kisan credit cards. 

e) National Bank for Agriculture and Rural Development to provide Rs 30,000 crore additional emergency working capital funding for marginal and small farmers through rural co-operative banks and regional rural banks for this purpose in May and June

f) A Rs 70,000-crore boost to the housing sector through a one-year extension of subsidised loans for affordable houses for the middle-income group with an annual income of Rs 6-18 lakh

May 15:

i) Rs 1.5 trillion package:

a) A  Rs 1-trillion agriculture infrastructure fund for farm-gate infrastructure. A NABARD-created financing facility to be provided for funding infrastructure projects like cold storage, warehouses, and yards at farm-gate and aggregation points. Fiscal impact will, however, be close to Rs 40,000 crore

b Rs 15,000-crore Animal Husbandry Infrastructure Development Fund to be set up to support private investment in dairy processing, value addition, and cattle feed infrastructure.

c) A Rs 10,000-crore scheme for formalising smaller food enterprises.

d) Rs 5,000 to be allocated over a few years to promote herbal cultivation and beekeeping, and extending a central scheme to all fruit and vegetables. 

e) Rs 13,343 crore to spent on the National Animal Disease Control Programme over the next five years

ii) More than  package, agri reform measures were the major backbone of announcements that day. These included amending the archaic Essential Commodities Act, bringing in a law to dismantle inter-state barriers on movements of agricultural produce, and creating a legal framework for a kind of contract farming. The government promulgated ordinances for these and passed Bills when the monsoon session of Parliament began. While the government says it would unshackle farmers and was the need of the hour, the opposition is up in arms saying small and marginal farmers will be exploited by big corporate and the system of minimum support price will ultimately be abolished. The government denied all these charges.  

May 16:

Rs 81,000 crore of revamped viability gap funding scheme announced to boost private sector investment in Social Infrastructure 

More than this package, the policy changes were more important. These include fast track investment clearance through an empowered group of secretaries, setting up of project development cells in each ministry to prepare investable projects, coordinate with investors and central and state Governments etc. Besides, commercial mining in coal sector introduced, changes announced to boost investments in mineral sector, corporatisation of ordnance factory boards announced, fdi limit in the defence manufacturing raised from 49  per cent to 74 per cent in automatic route.

May 17:

i) Provided little immediate relief except increasing allocation to its flagship rural job scheme by 66 per cent. 

ii) however, announced bold public sector reforms, which are yet to be implemented. According to these reforms, state-owned units remain only in strategic areas,  while those in other areas will be privatised.

iii) leeway to states given in terms of market borrowing, but much of it is conditional on reforms, such as the one-nation-one-ration card.This, if fully tapped, will release Rs 4.28 trillion for states, but will widen the fiscal deficit to 5 per cent of state gross domestic product for each.

iv) Most of the reforms announced in the areas of insolvency and the Companies Act were re-packaged with some additions. But some of these additions will have ramifications, such as extending the suspension of the Insolvency and Bankruptcy Code to one year, against six months announced earlier, and the insolvency framework for micro, small and medium enterprises.

v) Outlay for the health sector to improve infrastructure in blocks, but the amount not specified

October 12:

i) Central government employees to get tax relief and money equivalent to leave travel allowance if they spend three times 

that money in the goods and services that attract 12 per cent or more GST. Only essential items such as food are below 12 per cent. Besides items listed in the beginning of the story, most services such as insurance premium, air fare, hospitality, telecom attract 12 per cent or more GST

ii) Rs 10,000 to government employees to spend on digital mode through RuPay card. Repayment can be done in 10 EMIs. According to the government's own claims these two measures would give a boost to consumer spending by Rs 36,000 crore. However, if the private sector joins hands the spending could increase by another Rs 36,000 crore. 

iii) Rs 12,000 crore special loan to state governments to be repaid after 50 years. Rs 2,500 crore from this is to be paid to himalayan states, Rs 2,000 crore to those undertaking reform measures such as one nation, one ration card, and Rs 7,500 crore for the remaining states to be distributed on the basis of the finance commission's devolution formula. Experts say the fund is quite modest with ICRA estimating that small Goa, which is a small state, will get Rs 32 crore and Uttar Pradesh, a big state, will receive Rs 1,485 crore.

iv) Rs 25,000 crore additional capital expenditure by the union government. This will take the capex by the Centre to Rs 4,37,000 crore in FY'22. 

All these measures will not mean much and would amount to 0.2 per cent of GDP, according to Soumya Kanti Ghosh, SBI group chief economic advisor. There is not much additional fiscal cost to the exchequer. Rs 25,000 crore capital spending has already been factored in additional Rs 4.8 trillion borrowing.