Finance Minister Nirmala Sitharaman reveals the details of Modi's ₹20 lakh crore stimulus package
- Prime Minister Narendra Modi made a promise of a massive stimulus package to revive Indian economy from the damage caused by the COVID-19 coronavirus.
- The stimulus has been designed keeping in mind all factors – land, labour, liquidity and laws, Modi said in his address– with the promise to make India 'self reliant'.
- These are the top highlights from the details of the stimulus package unveiled by Finance Minister Nirmala Sitharaman.
There were 15 measures, out of which six will be fore micro, small, and medium enterprises, 2 relate to the employee provident funds, 2 relate to financial sector, one each for real estate and power distribution companies, aside from three tax-related measures.
The top highlights from the details of the stimulus package unveiled by Finance Minister Nirmala Sitharaman:
Stimulus measures for micro, small, and medium enterprises (MSME):
- ₹3 lakh crore collateral-free automatic loans for businesses, including MSMEs. - 4-year tenure, 12-month moratorium available till October 31, 2020. This will be fully credit guarantee cover for lenders (both banks and non-banking finance companies) on both principal and interest. This is an emergency credit line for small businesses
- Subordinate debt ₹20,000 crore for stressed MSMEs. They have a problem of equity. 2 lakh MSMEs that are either NPA or stressed will be eligible for it. A credit guarantee trust will give partial cover and the government will allocate ₹
- A ₹10,000 crore fund of funds for MSMEs that want to grow and, may be, even get listed eventually.
- The definition of MSMEs is getting changed to allow for benefits to continue even if they grow beyond a certain size. The investment limit (to qualify as an MSME) has been raised, the criteria to be called MSME will now include turnover, and the differentiation between the manufacturing and services MSME.
- For global tenders of government procurement of less than ₹200 crore will be limited to local MSMEs; they won't be global tenders at all. "Small units can now participate in the government purchases," the Finance Minister said.
- E-market linkage to be provided across the board as trade fairs etc. will get rarer in the post-COVID world. All the pending dues from the government or government-owned companies will be cleared in the next 45 days.
Steps taken for employee provident fund (EPF):
- EPF contribution will be paid by the government, which will provide liquidity support of ₹2,500 crore and 7.2 million employees will benefit from it.
- The statutory PF contribution is being reduced to 10% from 12% so that employers will have some more money in their hands. However, for PSUs we will continue to pay the 12% for the next three months.
- The government will buy investment-grade (not high-quality) debt of non-banking finance companies to the tune of ₹30,000 crore. It will be a special liquidity scheme, fully guaranteed by the government, that will keep them afloat and it will benefit housing sector.
- The government will expand the scope of an existing partial credit guarantee scheme with an outlay of ₹45,000 crore. The government will bear the the first 20% loss on unpaid debt (AA-rated or below).
- A ₹90,000 crore cash injection: Power Finance Corp and Rural Electrification Corp will give loans to power distribution companies (on guarantee from state governments), against the receivables on the books on the distributions companies.
Steps for infrastructure contractors:
- A maximum extension of six months for committed milestones for projects underway. Government agencies will partially release guarantee.
- Using the force majeure clause, the registration and completion date can extended by six months for those projects that were due after March 25, 2020. Urban development ministry will issue advisory to states/ Union Territories.
- Tax deducted at source for non-salaried payments like commission, brokerage, etc. can be reduced by 25%. This will release ₹50,000 crore into the economy.
- All pending refunds for charitable trusts, non-corporate businesses, professionals, cooperatives, propreitors, partnerships, LLP, etc. will be released immediately.
- Due date for tax returns deferred to Nov 30, 2020. Tax audits deadline deferred to October 31, 2020 from September 30.
- Tax assessments getting barred on Sep 30, 2020 will be extended to Dec 31, 2020. Those getting barred on March 31, 2021, will be extended to September 30, 2020.
Sensex zoomed over 1400 points on May 13 as investors had been waiting for this booster shot from the government.
However, while Modi promised to spend about 10% of India's nearly $2.8 trillion gross domestic product (GDP), nearly half of that has already been spent by the Reserve Bank of India and the Finance Ministry since the coronavirus crisis exploded in mid-March 2020.
|Modi's anouncement on May 12||₹20 lakh crore||The focus will be on all factors "land, labour, liquidity and laws"|
|Already announced: Finance Ministry on March 26||₹1.7 lakh crore||Support for the poor: Cooking gas, free foodgrains, medical insurance for frontline workers etc.|
|Already announced: RBI on March 27||₹5.7 lakh crore||Liquidity: Cut in both repo rate, reverse repo rate, cash reserve ratio, moratorium on loan repayments etc.|
|Already announced: RBI on April 20||1.5 lakh crore||Long-term repo operations and cheaper loan refinancing facilities|
|Remaining||₹11.1 lakh crore||Liquidity done - land, labour and other legal reforms are likely|
These are the stimulus measures announced by the Modi government so far (before May 13).
|Stimulus measure||Amount announced||Additional government expense||Reason for NIL impact on government|
|Cash transfer to women||₹30,000 crore||₹30,000 crore|
|Additional pension payments||₹9,000 crore||₹9,000 crore|
|Cash transfer to rural labourers||₹10,000 crore||₹10,000 crore|
|Income support for small farmers||₹17,400 crore||-||It's an existing scheme that has been expedited|
|Additional food subsidy||₹30,000 crore||₹30,000 crore|
|Free cooking gas||₹10,000 crore||₹10,000 crore|
|Contribution to pension fund||₹5,000 crore||₹5,000 crore|
|Life insurance for health workers etc.||₹1,500 crore||₹1,500 crore|
|Building worker fund||₹31,000 crore||-||Existing fund is getting reused|
|District mineral fund||₹25,000 crore||-||Existing fund is getting reused|
|Total||₹1.69 lakh crore||₹95,500 crore|
The stimulus has been designed keeping in mind all factors – land, labour, liquidity and laws– with the promise to make India 'self reliant', Modi had said. He also promised support for the poor and migrant workers but the measures to help the poor and to boost money supply, have already been taken, leaving the possibility of land and labour reforms on the table.
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