They are 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.
These measures are part of the Rs 20-trillion “Atmanirbhar Bharat” package, announced by Prime Minister Narendra Modi on Tuesday.
The finance minister said she would make announcements pertaining to different sectors every day, starting Wednesday, as the government looks to kick-start economic activities even as the nationwide Covid-19 lockdown is expected to continue beyond May 17.
The immediate fiscal impact of Wednesday’s announcements could be less than Rs 20,000 crore, even though analysts differ on that.
The key measures were aimed at MSMEs, with a Rs 3-trillion credit guarantee fund for collateral-free automatic loans, a Rs 20,000-crore subordinate fund for stressed MSMEs, and a Rs 50,000-crore equity infusion “fund of funds”.
Additionally, the finance minister said the definition of MSMEs would be altered, a plan that has been in the works for a while, and that the government would disallow global participation in its procurement tenders for up to Rs 200 crore.
“Beginning today (Wednesday), 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,” she said.
“Today’s measures are focused on getting back to work, i.e. enabling employees and employers, and businesses, especially MSMEs, to get back to production and workers back to gainful employment,” she said.
When asked how the government planned to fund the stimulus package, Sitharaman said that she would give these details, and explain how much the Centre’s own outlay in the overall package would be. “I can say that the increased borrowing will be part of that,” she said.
Last week, the Centre increased its borrowing programme for FY21 to Rs 12 trillion from Rs 7.8 trillion.
However, a senior government official who has been part of these deliberations told Business Standard for now the increased borrowing seemed to be adequate because most measures for industry were and would be on liquidity.
The Centre’s own burden will be in terms of increased handouts to the beneficiaries of various schemes through direct benefit transfer, which will be announced over the coming days.
She said these measures would give taxpayers savings of Rs 50,000 crore of savings. Sitharaman also extended the dates of tax assessments, income-tax returns, and Vivaad se Vishwaas scheme, and said that pending refunds to charitable trusts and non-corporate businesses would be made immediately.
For the organised sector, Sitharaman said the statutory provident fund contribution of employers and employees would be 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 will be applicable for the employees, but the employers will continue to make 12 per cent contribution.
The relaxation will apply only to smaller establishments not covered by the earlier EPFO relaxations announced by the finance minister at the end of March. Under that, the Centre contributes 12 per cent of salary each on behalf of both employer and employee. That has been extended by three months to cover the salaries of June, July, and August.
Sitharaman also announced a Rs 30,000-crore special liquidity scheme for NBFCs, housing finance companies (HFCs), and micro-finance institutions (MFIs). Liquidity will be provided by the Reserve Bank of India and investment will be made in primary and secondary market transactions in investment-grade debt paper of NBFCs, HFCs, and MFIs. “This will be 100 per cent guaranteed by the Government of India,” she said.
The finance minister expanded the Rs 1 lakh crore partial credit guarantee fund scheme by a further Rs 45,000 crore, and said that PFC and REC would provide Rs 90,000 crore worth 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.
For the real estate sector, she said Covid-19 would be treated as a “force majeure” event and that the registration and completion dates for all registered projects expiring on or after March 25, 2020, will be extended by six months.
Reaction came thick and fast from across the political spectrum and India Inc.
“Today’s announcements will go a long way in addressing issues faced by businesses, especially MSMEs. The steps announced will boost liquidity, empower the entrepreneurs, and strengthen their competitive spirit,” Prime Minister Narendra Modi said.
RSS-affiliate Bharatiya Mazdoor Sangh also backed Sitharaman’s announcements.
Former finance minister P Chidambaram said: “There is absolutely nothing in what the FM said for the lakhs of poor, hungry and devastated migrant workers who have walked — and many thousands are still walking — back to their home states. There is also absolutely nothing by way of cash transfer to the bottom half of the population who have been pushed into destitution.”
He said Sitharaman’s announcements on MSMEs were skewed in favour of about 450,000 larger MSMEs while the bulk of the 63 million MSMEs were “left high and dry”.
Snapdeal Chief Executive Officer Kunal Bahl said: “MSMEs are India’s backbone. Today’s measures will help them get back on their feet. Additional collateral- and guarantee-free loans, equity funding options, better access to government procurement, e-market linkage and higher thresholds are strong enablers. Liquidity and credit guarantees for banks and NBFCs will help remove hesitation in lending. Friction-free implementation of these measures can slowly convert adversity to advantage.”
State Bank of India Chairman Rajnish Kumar said: “The policy bouquet is well-structured, suitably targeted, within reasonable fiscal limits but still has the maximum impact. The measures for MSMEs through guarantees, equity infusion, and debt support will incentivise bank lending to MSMEs as well as provide crucial support to stressed entities in the current situation.”