The news of the announcement of a package from the Finance Minister did raise a lot of expectations given the threat of a very negative impact of coronavirus on the economy. A quick gauge of the reaction is the stock market, where the S&P BSE Sensex declined by around 500 points by the time the announcements were made. This is not surprising as the FM had clearly stated in her prologue that the announcements to be made would be more in the procedural and administrative areas, which seek to address the convenience of individuals and units in the light of the shutdown. She has, however, assured that there would be a special economic revival package soon.
So what does this package talk of? It essentially looks at eight areas - income tax, customs, goods and services tax (GST), company affairs (MCA), IBC, banking, fisheries and commerce. In short, there has been an extension in timelines for filing of various statutory returns/compliances from March to June 2020. In the light of the present lockdown, this will benefit everyone involved.
Three things, however, stand out. The first pertains to the IBC where the FM has raised the threshold of default from Rs 1 lakh to Rs 1 core, with a further topping that if conditions in the economy stay grim or worsen during the next month, there would be a six month extension where small and medium enterprises (SMEs) will not be taken to the IBC. This is a big positive as these units have already bore the brunt of the shutdown just as was the case with demonetisation and GST. As the shutdown will impact their incomes and hence debt servicing ability, the present set of announcements would come as a major relief for the SMEs.
This is also a signal for banks, too, which will have to evaluate their portfolio as well as the possible loss of revenue from these enterprises which will not service their debt. This can be a potential stress point for banks as they would also be simultaneously watchful of home loans where the delinquency rates could tend to increase.
The second pertain to banking where the FM has announced certain waivers of charges on use of debit cards in any automated teller machines (ATM) or the maintenance of minimum balance for a period of three months. This will be helpful for households where people have been confined to homes and would need access to cash to make payments given the precaution taken on using cards given the human touch required on machines.
Third, from the point of view of adherence to MCA rules, the announcement involving flexibility in holding of Board meetings for another 60 days as well as the one regarding independent directors will help companies escape the penalties that go with these clauses given that Directors are not in a position to travel and holding meetings has become impossible under the current conditions of a shutdown.
Hence on the whole the announcements have extended all deadlines from March or April end to June end without quite changing the guidelines of any scheme. This is significant because the government is not really going back on any rule laid down giving more time to comply under the present circumstances.
Going ahead, the markets will look for more substantial announcements in the next package that can provide more support to an economy likely to be hit hard by the virus in terms of employment, loss of production, supply dislocations and uncertainty.
Madan Sabnavis is chief economist at CARE Ratings. Views are personal.