As the Indian economy reels from the impact of the coronavirus pandemic, the Narendra Modi government is drawing up a relief package for industry. The relaxation of asset-classification norms by banks, thus allowing companies to delay the repayment of loans, and tax holidays for the worst-hit sectors like aviation and hospitality are expected to be part of the package, Business Standard has learnt.
These measures could be discussed by the COVID-19 Economic Response Task Force, announced by the Prime Minister. The task force is also expected to announce sector-specific measures in the coming weeks, government sources said.
“There have been discussions at multiple stages, between various ministries and with regulators such as the Reserve Bank of India. Sectoral ministries are giving their suggestions,” said a senior government official. The final details were being worked out, the person said.
“One plan being strongly considered is loan forbearance. For a specific period, companies will be exempt from the repayment of loans, and banks will relax their asset-classification norms,” said the official.
According to the current norms, if a debt is not serviced for 90 days, it is classified as a non-performing asset. After the proposed relaxation, banks will not be classifying outstanding loans as NPAs.
The official said discussions were still being held internally and with the RBI on whether such relaxations should be provided to only micro, small and medium enterprises or larger corporates as well. However, the relaxation on loan repayments won’t be sector-specific.
“Say you have a hotel, and you have a company which provides security and manpower logistics for the hotel, both are being hit,” said a second official. “It will be more difficult to provide relaxations sector-wise,” the official added.
Another aspect of the relief package being discussed is whether a temporary tax holiday should be for industry as a whole or sector-specific. Top policymakers are aware of the impact that such a move could have on the already-weak tax revenue collections.
While such a tax deferment will likely be for the April-June 2020-21 quarter, a weak economy is negatively impacting tax collections. For example, the Centre needs to collect Rs 3.06 trillion from direct taxes in 20 days, and Rs 1.11 trillion from indirect taxes in a month to meet the revised estimates (RE) for 2019-20, Minister of State for Finance Anurag Singh Thakur said in the Rajya Sabha in a written reply earlier this week.
“These are unprecedented times and we will have to keep aside fiscal considerations,” the second official said. Both officials clarified, however, that so far no fiscal stimulus on the expenditure side was being considered. The revenue foregone due to any tax deferment will be considered a fiscal stimulus.