On 12th of May Honourable Prime Minister Narendra Modi announced a Rs 20-lakh-crore stimulus package, equivalent to about 10% of India’s GDP, aimed at making the country self-reliant and reviving the stalled economy post the Covid pandemic crisis. Since bold reforms are needed to keep the engine of the economy running, the plan dubbed as Atmanirbhar Bharat Abhiyan aims to include supply chain reforms for agriculture, rational tax system, simple and clear laws, capable human resources and a strong financial system. These reforms will help promote business, attract investments, and further strengthen ‘Make in India, according to the Prime Minister.
Later next day, Honourable Finance Minister Nirmala Sitharaman spelled out granular details of the combined Rs 20-lakh crore stimulus package to help cushion Covid-19 blow. It was announced that a facility of Rs 3 lakh crores collateral-free automatic loans for business, including micro, small and medium enterprise (MSMEs) will be disbursed. Borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover will be eligible for this scheme which can be availed till the 31st October 2020. The loans will have a tenor of 4 years with a moratorium of 12 months on principal repayment and the scheme comes with an additional advantage of no fresh collateral or guarantee fee. The move aims at resuming the functioning of 45 lakh MSME units to carry on with their business activities and also safeguard jobs in the long run. To provide further support to the MSME industry, the government also announced Rs. 20,000 crores of subordinate debt for the MSMEs in distress. Promoters of MSMEs will be given debt by banks, which will then be infused by promoters as equity in the unit. In order to boost the capacity of small businesses and encourage them to get listed on the main board of Stock Exchanges, a Rs 50,000 Crore equity infusion for MSMEs through fund of funds will also be set up.
Under Pradhan Mantri Garib Kalyan Package, payment of 12% of employer and 12% employee contributions made into EPF accounts of eligible establishments earlier has been extended for 3 more months of June, July and August 2020. This move aims to provide liquidity relief of Rs 2500 crore to 3.67 lakh establishments and benefit 72.22 lakh employees. A Rs. 6750 liquidity support has also been provided by reducing Statutory PF contribution from 12% each to 10% each for all establishments covered by EPFO for the next three months.
The speech of Prime Minister Narendra Modi also envisaged to improve liquidity in the economy. A Rs. 30,000 crore liquidity scheme for NBFCs/HFCs/MFIs will be implemented that will boost investment in both primary and secondary market transactions in investment grade debt paper of the non banking finance institutions. The securities under this scheme will be fully guaranteed by the Government of India and the scheme will further help provide liquidity support for mutual funds and create investor confidence in the market. In order to provide more funds at the disposal of the taxpayers, the rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts has been reduced by 25% of the existing rates. This reduction shall be applicable for the remaining part of the FY 2020-21 till the 31st March, 2021 and this measure will release Liquidity of Rs. 50,000 crore.
The government further announced that Power Finance Corporation and Rural Electrification Corporation Limited will infuse liquidity of Rs 90,000 Crores to Distribution Companies(Discoms) against receivables. The loans will be given against state guarantee for the exclusive purpose of discharging liabilities of Discoms to Power Generating Companies. Digital payments facility by Discoms for consumers and liquidation of outstanding dues of state governments plan to reduce financial and operational losses. Central Public Sector Generation Companies shall give rebate to Discoms which shall be passed on to the final consumers (industries).
Measures were also taken to provide relief to the contractors. Extension of up to 6 months (without costs to contractor) will be provided by all central agencies like Railways, Ministry of Road transport and Highways, Central Public Works dept etc. in construction works and goods and services contracts. Government agencies will partially release bank guarantees to the extent that contracts are partially completed to ease cash flows.
India will fire on all cylinders to achieve Atmanirbharta (self-reliance) and could offer tax sops, procurement preference in government contracts for domestically produced goods while imposing stringent non-tariff barriers to discourage imports. Measures for sectors such as pharmaceuticals, furniture and leather are in focus and states could be asked to revamp their procurement processes to prefer local manufacturing. The country has begun work on a continuity plan that includes cutting down import dependence, especially from China, by focussing aggressively on substitution while improving safety compliance and quality goods to gain global market share. Swadeshi focus was not just an ideological concept presented, it is a serious thought that would be followed up with concrete steps.