K R Suri, Aryan Suri
Prime Minister has announced Rs20 Lakh crore economic package to fight Covid19 economic crisis which is 10% of country’s GDP.
In the Covid-19 stimulus package, five pillars of Atmanirbhar Bharat were stressed upon: economy, infrastructure, tech-driven system, vibrant demography and demand.
Highlights of the Package:
* 1.7 lakh crore worth of free food grains to poor and cash to women
* Reserve bank liquidity measures and interest rate cuts
* Generous loans to MSMEs and special packages for NBFCs( non banking financial companies) and MFIs (micro finance institutions)
* A big push towards make in India.
The package is divided into 5 tranches(phases) covering almost all major forces of the economy
The package is focused on land, labour, liquidity and laws. Finance Minister Nirmala Sitharaman on Wednesday shared the first tranche of the package which is primarily focused on providing liquidity and credit support to ensure MSMEs(Medium and Small enterprises) and NBFCs are able to sustain this tough time. The focus of the tranche 2 is more on the individual level which included non ration card holders to get 5kg of wheat/rice per family and 1kg of gram free of cost. Trench 3 majorly focused on Indian farmers where they announced Rs13,433 crore fund to ensure 100% vaccination of 53 crore livestock and to give concessional interest loans to dairy cooperatives. India being worlds largest producer of milk, jute, pulses and sugarcane no economic relief measures can be complete unless it begins with farmers. Tranch 4 and 5 gives big thrust to make in India and makes the package overall simplified also giving Rs40,000 crore for the MGNREGA scheme over and above the budgetary allocation.
First Tranche (Fiscal) : INR 5,94,550 Crores
Focusing on distressed MSMEs GOI is providing collateral free loans for borrowers with unto Rs25 crores and Rs100 crore turnover which has 4 year tenure and 12 months moratorium on interest payment. Apart from this Rs30,000 crore special liquidity scheme will be provided to NBFCs and MFIs, EPF contribution to be reduced for employers and employees from 12% to 10%. Relief to contractors and real estate projects will be provided in the form of extension up to 6 months complete the projects. The TDS rates are also reduced by 25% for the remaining fiscal year.
Second Tranche (Fiscal): INR 3,10,000 Crores
The second phase of the stimulus package will focus on the migrant workers, farmers and tribals. The 1 nation 1 ration card scheme will benefit the poor and migrant workers. Over 8 crore migrant workers to get free food grains for next two months. Government has also transferred Rs11,000 crore to fund 3 meals per day at shelters for migrants. Rs200,000 crore worth of concessional credit is also announced that will benefit 2.50 crore farmers across India.
Third Tranche (Fiscal):INR 150,000 crore
Third tranche puts the entire thrust on Jai Kisaan wherein GOI announced Rs13,433 crore fund to ensure 100% vaccination of livestock. A special Rs 100,000 crore fund made available to entrepreneurs and start ups to add value to agriculture sector. Apart from this Rs500 crore has been allocated to beekeeping which finally got official agriculture status and Rs20,000 crore for fishermen and Rs5000 crore for 2 crore dairy farmers. Also the major amount has been allocated for agriculture infrastructure.
Fourth and Fifth Tranche: INR 48,100 crores
The day 4 of the economic relief package gave major push to Make In India by opening many sectors to the private sector. Prime focus areas included permission to setting up of atomic reactors, space travel and space research to be opened up to private sector. In oder to boost business, the Government has allocated Rs8100 crores for project funding.The big takeaway from the 5th tranche would be that now coal will no longer be Government monopoly. In a move to make India open to global market companies will now be permitted to directly list securities in foreign jurisdictions before listing locally.
RBI Measures (Monetary):INR 9,94,403 crores
Reserve bank of India has also changed various rates which are also the part of the relief package that includes cut in the repo rate by 75 basis points (bps) to 4.4%, reverse repo rate at 4% dow 90 bps. RBI’s liquidity measure and interest rate cuts constitutes around Rs6.5 lakh crores.
Details of the Stimulus for each sector
Agriculture Industry, Food Processing and Food & Beverage:
* Rs 910 Billions for cold chains, post-harvest storage infrastructures etc.
* A fund of USD 1.3 Billion set up for a cluster-based micro food scheme, benefitting at least 0.2 Million Micro Food Enterprises.
* The Government will launch “Pradhan Mantri Matsya Sampada Yojana” for development of marine and inland fisheries to fill the gaps in value chains. USD 2.6 Billion will lead to an additional 7 million tons of fish production in the next five years and employ 5.5 million people.
* Rs 119 Billion for vaccination of livestock in India to eradicate foot and mouth disease.
* Rs 140 Billion on ramping up the dairy infrastructure and investments in cattle feed.
* Rs 37000Million for growing of herbal and medicinal plants. One million hectares of land for growing medicinal and herbal plants, providing an income of nearly USD 650 Million for farmers.
* Rs 4550 Million allocated for beekeeping to help 0.2 million beekeepers.
* An amendment to the Essential Commodities Act will enable better prices for farmers. Foodstuffs including edible oils, oilseeds, pulses, onions and potato will be deregulated.
* The legal framework will be improved to enable farmers to engage with processors, aggregators, large retailers, exporters etc. fairly and transparently. Farmers’ risk mitigation, assured returns, and quality standardization shall be part of the framework.
Mining and Metallurgy
* The Government plans to introduce commercial mining of coal. India focuses on self-reliance in coal production.
* Private investment encouraged in the mineral sector.
* Five hundred mining blocks auctioned through an open and transparent process. A joint auction of Bauxite & Coal mineral blocks to enhance the Aluminium industry’s competitiveness.
Aerospace and Defence sector
* Indigenization of imported spares, separate budget provisioning for domestic capital procurement.
* FDI limit in defence manufacturing under automatic route raised from 49% to 74%.
* Corporatization of Ordnance factory board.
* Restrictions on the utilization of Indian Air Space eased so that civilian flying becomes more efficient.
* India to become a global hub for aircraft maintenance, repair and overhaul.
* Airports Authority of India has awarded three airports out of 6 bids for operation & maintenance on Public-Private Partnership (PPP) basis. Additional investment by private players in 12 airports in first and second rounds expected around ~USD 1.7 Billion.
Energy & Utility sector
* Power Distribution Companies in Union Territories privatized in sync with the new tariff policies to bring in efficiency and stability to the entire power sector.
* Technology Development – Incubation Centres set up in the nuclear sector to foster synergies between research facilities and tech entrepreneurs. Research reactor established in the PPP mode for the production of medical isotopes.
* Health-related steps for COVID-19 containment: USD 2 Billion announced for states for essential items and testing labs, along with rolling out of teleconsultation services, the launch of the Arogya Setu app, and protection for healthcare workers with adequate PPE. Investment in Health infrastructure increased at the grassroots for health and wellness centres, with particular focus on aspirational districts
* All districts will have infectious disease hospitals at the block-level, and public health labs will be set up.
* Insurance cover of USD 600,000 per person introduced for health professionals.
* PM eVidya programme to start immediately. All Classes from 1 to 12 will have a TV channel each. Also, e-content for visually & hearing impaired.
* Top 100 universities granted permission to start online courses by May 30, 2020.
* The Society of Indian Automobile Manufacturers (SIAM) have complained that the “Aatma Nirbhar Bharat” economic package has left out the auto industry.
* SIAM said it had several engagements with the Government at various levels and is looking forward to some direct fiscal measures for the auto industry from the Centre in the ~265 Billion USD stimulus package.
* According to SIAM President Rajan Wadhera, the agriculture sector package may benefit the auto sector indirectly in the medium term. Still, the Indian automotive industry needed an immediate stimulus to boost demand, which has not happened.
* The industry shrunk by 18 per cent last year. SIAM assessed the impact of Covid-19 and concluded that the sector could have a decline between 22 per cent and 35 per cent in various industry segments if the overall Indian GDP growth is at 0-1 per cent for FY 21.
* While the textile industry bodies welcomed Prime Minister Narendra Modi’s stimulus package, garment manufacturing companies are sceptical if there will be any significant gain.
* The Confederation of Indian Textile Industry (CITI) chairman T Rajkumar said that the new definition of Micro, Small and Medium Enterprises would help small weaving mills under the new MSME norms and many garment manufacturers will benefit.
* Another industry expert said that the credit guarantee scheme would benefit the companies as banks will now be in a better position to lend with reduced risk exposure. And collateral-free loans with a moratorium on interests will encourage MSMEs to borrow and sustain.
* A Sakthivel, chairman, Apparel Export Promotion Council (AEPC) said the Reserve Bank of India’s decision to extend the scheme providing interest subsidy for pre- and post-shipment export credit up to March 2021 help the apparel sector to access cheaper loans.
Ultimate effect in Public Domain:
The Stimulus provides most supportive actions in liquidity and guarantees, and unlike many other major economies, there is not much direct cash support or demand push. Over the medium term, the economy should get a reform boost, but recovery from the COVID19 shock will likely take longer.
The focus of the relief package is on Indian Economy as a whole. Tranches 1 and 2 were the building blocks where the sharp focus is on the financial sector and vulnerable sections of the economy. Tranche 3 moves the focus to the farmers, since India still is agriculture based economy no relief package can be meaningful without the focus on farmers. And the following tranches focused more on the business outlooks like giving more push to make in India and enhancing foreign investment and private participation.
Comments of notable Personalities:
Raghuram Rajan (Ex RBI Governor)Prof University of Chicago Booth School of Business: What we need for the MSMEs (Medium and small enterprises) is an improvement in their business conditions- which means stronger growth as we come out of this recession, but also looking at the debt situation and finding ways to give them debt relief rather than additional debt. He also said we need to send more both money as well as food grains moreover moreover he in his interview with The Wire he said people can’t just eat food grains, they need vegetables, oil to cook. They need the stuffs also. Also from his ineterview it could be concluded that he feels that the government hasn’t thought carefully enough or in different ways it could help the industry.
Abhijeet Banerjee (Nobel Laureate) field Economics Prof. MIT: Mr. Banerjee in conversation with Rahul Gandhi said India needs a big stimulus package, bigger than the one in March to revive the economy which is hurting from the civid 19 disease and lockdown enforced to combat it.
(The authors are Resident Director (Indigrid) Mumbai Ex GM Powergrid Corp and Certified Career Counsellor Christ Deemed to be University, Bengaluru)
K R Suri, Aryan Suri