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Monday, April 12, 2021

What does the Rs 20 Lakh Crore ‘Atmanirbhar Bharat’ stimulus package means for Indians?

In his, rather long, address to the nation, Prime Minister Narendra Modi had said that India should view the COVID-19 crisis as “an opportunity” and concentrate on achieving economic self-reliance or atmanirbharta. In a video message to the nation, he stressed on the importance of promoting “local” products — go vocal for local, he said.

FM Sitharaman on Sunday said that the Rs 20 lakh crore includes Rs 8.01 lakh crore of liquidity measures that were announced, in phases, by the RBI since March. She added that it also comprises the Rs 1.92 lakh crore package of free foodgrain and cooking gas to poor and cash to some sections announced in March.

Atmanirbhar Bharat
Atmanirbhar Bharat Summarized. Source – PIB

The First Tranche

The five-part stimulus package announced beginning May 13 comprised Rs 5.94 lakh crore in the first tranche that provided credit line to small businesses and support to shadow banks and electricity distribution companies

Working Capital Support:

  • The government will provide relief to the business, additional working capital finance of 20% of the outstanding credit as on February 29, in the form of a Term Loan at a concessional rate of interest will be provided.
    • Who will be eligible: This will be available to units with up to Rs 25 crore outstanding and turnover of up to Rs 100 crore whose accounts are standard. The units will not have to provide any guarantee or collateral of their own. The amount will be 100% guaranteed by the Government of India providing total liquidity of Rs. 3.0 lakh crores to more than 45 lakh MSMEs.

Subordinate Debt Support:

  • The Fm made provision for Rs. 20,000 cr subordinate debt for two lakh MSMEs which are NPA or are stressed. The government will support them with Rs. 4,000 Cr. to Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE). Banks are expected to provide the subordinate-debt to promoters of such MSMEs equal to 15% of his existing stake in the unit subject to a maximum of Rs 75 lakhs. The government will set up a Fund of Funds with a corpus of Rs 10,000 crore that will provide equity funding support for MSMEs. The Fund of Funds shall be operated through a Mother and a few Daughter funds. It is expected that with leverage of 1:4 at the level of daughter funds, the Fund of Funds will be able to mobilise equity of about Rs 50,000 crores.

Other Significant Announcements under first tranche:

  • In another major announcement, the FM said that the definition of MSME will be revised by raising the Investment limit. An additional criterion of turnover also being introduced. The distinction between manufacturing and service sector will also be eliminated. e-market linkage for MSMEs will be promoted to act as a replacement for trade fairs and exhibitions. MSME receivables from Government and CPSEs will be released in 45 days.
  • General Financial Rules (GFR) of the Government will be amended to disallow global tender enquiries in the procurement of Goods and Services of the value of less than Rs 200 crores.
  • Employees Provident Fund Support for business and organised workers. The scheme introduced as part of PMGKP under which Government of India contributes 12% of salary each on behalf of both employer and employee to EPF will be extended by another 3 months for salary months of June, July and August 2020. Total benefits accrued is about Rs 2500 crores to 72.22 lakh employees.
  • Statutory PF contribution of both employer and employee reduced to 10% each from the existing 12% each for all establishments covered by EPFO for the next 3 months. This will provide liquidity of about Rs.2250 Crore per month.

What does the stimulus package mean?
Indian workers sewing in a clothing factory in Dharavi slum (Photo: shutterstock.com/ paul prescott)

In addition there are other liquidity measures:

  • The government will also launch Rs 30,000 crore Special Liquidity Scheme, liquidity being provided by RBI. The investment will be made in primary and secondary market transactions in investment-grade debt paper of NBFCs, HFCs and MFIs. This will be 100 per cent guaranteed by the Government of India.
  • The existing Partial Credit Guarantee scheme is being revamped and now will be extended to cover the borrowings of lower-rated NBFCs, HFCs and other Micro Finance Institutions (MFIs). Government of India will provide 20 per cent first loss sovereign guarantee to Public Sector Banks.
  • Power Finance Corporation and Rural Electrification Corporation will infuse liquidity in the DISCOMS to the extent of Rs 90000 crores in two equal installments. This amount will be used by DISCOMS to pay their dues to Transmission and Generation companies. Further, CPSE GENCOs will give a rebate to DISCOMS on the condition that the same is passed on to the final consumers as a relief towards their fixed charges.
  • All central agencies like Railways, Ministry of Road Transport and Highways and CPWD will give an extension of up to 6 months for completion of contractual obligations, including in respect of EPC and concession agreements.
  • State Governments are being advised to invoke the Force Majeure clause under RERA. The registration and completion date for all registered projects will be extended up to 6 months and maybe further extended by another 3 months based on the State’s situation. Various statutory compliances under RERA will also be extended concurrently.
  • The pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs and cooperatives shall be issued immediately. Reduction in Rates of ‘Tax Deduction at Source’ and ‘Tax Collected at Source” – The TDS rates for all non-salaried payment to residents, and tax collected at source rate will be reduced by 25 per cent of the specified rates for the remaining period of FY 20-21.This will provide liquidity to the tune of Rs 50,000 Crore. The due date of all Income Tax Returns for Assessment Year 2020-21 will be extended to 30 November 2020.  Similarly, tax audit due date will be extended to 31 October 2020.
  • The date for making payment without additional amount under the “Vivad Se Vishwas” scheme will be extended to 31 December 2020.

The Second Tranche

Migrant Worker support:

  • Free foodgrain to stranded migrant workers for two months and credit to farmers, totalling Rs 3.10 lakh crore.
  • Mentioned that small business setups, especially those run by street vendors, support dignified livelihoods through Shishu MUDRA loans. They also need our patronage by way of business as well as caring attention in the form of social security and enhanced credit.
  • Additional food grain to all the States/UTs at the rate of 5 kg per migrant labourer and 1 kg Chana per family per month for two months i.e. May and June 2020 free of cost shall be allocated. Migrant labourers not covered under National Food Security Act or without a ration card in the State/UT in which they are stranded at present will be eligible. States/UTs shall be advised to put a mechanism for targeted distribution as envisaged in the scheme. 8 Lakh MT of food-grain and 50,000 MT of Chana shall be allocated. The entire outlay of Rs. 3500 crore will be borne by Government of India. Technology system to be used enabling Migrants to access PDS (Ration) from any Fair Price Shops in India by March,2021-One Nation one Ration Card.

What stimulus package means?
Migrant workers wearing a mask on their journey back home during a nationwide lockdown to fight the spread of the COVID-19 Coronavirus (Photo: shutterstock.com/Manoej Paateel)

Affordable Living for migrant workers:

Central Government will launch a scheme for migrant workers and urban poor to provide ease of living at an affordable rent. Affordable Rental Housing Complexes will provide social security and quality life to migrant labour, urban poor, and students etc. This will be done through converting government-funded houses in the cities into Affordable Rental Housing Complexes (ARHC) under PPP mode through concessionaire; manufacturing units, industries, institutions, associations to develop Affordable Rental Housing Complexes (ARHC) on their private land and operate; and Incentivizing  State Govt agencies/Central Government Organizations on similar lines to develop Affordable Rental Housing Complexes (ARHC) and operate. The exact details of the scheme will be released by the Ministry/Department.

Credit Support:

  • Government of India will provide Interest subvention of 2% for prompt payees for a period of 12 months to MUDRA Shishu loanees, who have loans below Rs 50,000. The current portfolio of MUDRA Shishu loans is around Rs 1.62 Lakh crore. This will provide relief of about Rs 1,500 crore to Shishu MUDRA loanee.
  • A special scheme will be launched within a month to facilitate easy access to credit to Street vendors, who are amongst the most adversely impacted by the present situation for enabling them to restart their businesses. Under this scheme, the bank credit facility for initial working capital up to Rs. 10,000 for each enterprise will be extended. This scheme will cover urban as well as rural vendors doing business in the adjoining urban areas. Use of digital payments and timely repayments will be incentivized through monetary rewards. It is expected that 50 lakh street vendors will be benefited under this scheme and credit of Rs. 5,000 crore would flow to them. A Rs 70,000 crore boost was announced to the housing sector and middle-income group through the extension of  Credit Linked Subsidy Scheme for MIG under PMAY(Urban).

The Credit Linked Subsidy Scheme for Middle Income Group (annual Income between Rs 6 and 18 lakhs) will be extended up to March 2021. This will benefit 2.5 lakhs middle income families during 2020-21 and will lead to an investment of over Rs 70,000 crore in the housing sector. This will create a significant number of jobs by giving a boost to the housing sector and will stimulate demand for steel, cement, transport and other construction materials.

Adivasi Employment Creation:

  • Approximately Rs 6,000 crore of funds under Compensatory Afforestation Management & Planning Authority (CAMPA) will be used for Afforestation and Plantation works, including in urban areas, Artificial regeneration, assisted natural regeneration, forest management, soil & moisture conservation works, Forest protection, forest and wildlife-related infrastructure development, wildlife protection and management etc. Government of India will grant immediate approval to these plans amounting to Rs 6000 crore. This will create job opportunities in urban, semi-urban and rural areas and also for Tribals (Adivasi).

Refinance Opportunities for Farmers:

  • NABARD will extend additional re-finance support of Rs 30,000 crore for meeting crop loan requirement of Rural Cooperative Banks and RRBs. This refinance will be front-loaded and available on tap. This is over and above Rs 90,000 crore that will be provided by NABARD to this sector in the normal course. This will benefit around 3 crore farmers, mostly small and marginal and it will meet their post-harvest Rabi and current Kharif requirements. A special drive to provide concessional credit to PM-KISAN beneficiaries through Kisan Credit Cards. Fisherman and Animal Husbandry Farmers will also be included in this drive. This will inject additional liquidity of  Rs 2 lakh crore in the farm sector. 2.5 crore farmers will be covered.

The Third Tranche

Spending on Agriculture & Related

  • The spending on agro infrastructure and other measures for agriculture and allied sectors announced in the third tranche was a total of Rs 1.5 lakh crore. The Finance Minister announced measures to strengthen Agriculture Infrastructure Logistics, Capacity Building, Governance and Administrative Reforms for Agriculture, Fisheries and Food Processing Sectors in the third tranche. A total of Rs 1 lakh crore agro infrastructure Fund for farm-gate infrastructure for farmers.
  • She also announced a Rs 10,000 crore scheme for the formalisation of Micro Food Enterprises (MFE) and Rs 20,000 crore for Fishermen through Pradhan Mantri Matsya Sampada Yojana (PMMSY)
  • “Operation Greens” run by Ministry of Food Processing Industries (MOFPI) will be extended from tomatoes, onion and potatoes to ALL fruit and vegetables. The Scheme would provide 50% subsidy on transportation from surplus to deficient markets, 50% subsidy on storage, including cold storages and will be launched as a pilot for the next 6 months and will be extended and expanded. This will lead to better price realisation to farmers, reduced wastages, affordability of products for consumers.

Animal Husbandry:

Sitharaman also announced a National Animal Disease Control Programme and proposed the setting up of Animal Husbandry Infrastructure Development Fund for Rs. 15,000 crore, promotion of Herbal Cultivation — an outlay of Rs 4,000 crore in addition to a beekeeping initiative for Rs 500 crore.

Administrative Reforms:

  • But, last but not the least, rather the most important announcement was made about the measures for Governance and Administrative Reforms for Agriculture Sector. The Government will amend the Essential Commodities Act. Agriculture food including cereals, edible oils, oilseeds, pulses, onions and potato shall be deregulated. The stock limit will be imposed under very exceptional circumstances like national calamities, famine with the surge in prices. Further, No such stock limit shall apply to processors or value chain participant, subject to their installed capacity or to any exporter subject to the export demand.
  • The Government will finalize a facilitative legal framework to enable farmers to engage with processors, aggregators, large retailers, exporters etc. in a fair and transparent manner. Risk mitigation for farmers assured returns and quality standardisation shall form an integral part of the framework and Agriculture Marketing Reforms will provide marketing choices to farmers.

The Fourth Tranche

  • For the fourth tranche, there will be fast-tracking of investment clearance through Empowered Group of Secretaries.
  • Project Development Cell will be constituted in each Ministry to prepare investible projects, coordinate with investors and Central/State Governments.
  • There will be a ranking of States on investment attractiveness to compete for new investment. Incentive schemes for the promotion of new champion sectors will be launched in sectors such as solar PV manufacturing; advanced cell battery storage etc.
  • Smt. Sitharaman also announced that a scheme will be implemented in States through challenge mode for Industrial Cluster Upgradation of common infrastructure facilities and connectivity. There will be the availability of industrial land/land banks for promoting new investments and making information available on Industrial Information System (IIS) with GIS mapping. 3376 Industrial Parks/ Estates/SEZs in five lakh hectares are mapped on IIS. All Industrial Parks will be ranked during 2020-21.

The Fifth Tranche

  • The Finance Minister said that the last of the five announcements is in continuation in the series of reforms. Soon after lockdown, we came up with Prime Minister Garib Kalyan Package (PMGKP). As part of the Rs 1.70 lakh crore PMGKP, the Government announced the distribution of free food grains, cash payment to women and poor senior citizens and farmers etc. The swift implementation of the package is being continuously monitored. Around 41 crore poor people received financial assistance of Rs 52,608 crore under the PMGKP. The Finance Minister also said PMGKP used technology to do Direct Benefit Transfer (DBT) to people. We could do what we did because of the initiatives taken during the last few years, she added.
  • In addition, 84 lakh metric tonnes of food grains has been lifted by States and also more than 3.5 lakh metric tonnes of pulses has been dispatched to various States. And for this, Smt. Sitharaman appreciated the concerted efforts of FCI, NAFED and States, giving pulses and grains in huge quantities, despite logistical challenges.
  • In addition, a new public sector enterprise policy that will create a recharged disinvestment playbook and creation of new health infrastructure was also announced by finance minister Nirmala Sitharaman on Sunday, reported Livemint.


What is the overall reception:

But over a dozen banks, brokerages and rating agencies have said the package falls short of 10% of GDP and works out to around 1% and may not be enough to address the large-scale devastation inflicted by the pandemic across crucial sectors of the economy, reported The Times of India. “The Indian government’s Covid-19 package will not have a major fiscal and economic impact, despite the government’s claim of its ‘10% of GDP’ size,” said a report from Fitch Solutions Country Risk and Industry Research (a unit of Fitch Group). “India’s package includes previously announced measures and also monetary stimulus, making the actual fiscal impact of the additional stimulus only about 1% of GDP, according to our estimates,” the report said. Similarly, Moody’s Investors Service on Tuesday said the measures announced by the government for financial institutions as part of the Rs 20-lakh-crore economic package will help ease their asset risk, but will not fully offset the negative impact from the Covid-19 outbreak. SBI’s research wing said the package does not do much to boost consumption in the short-term and that could act as a drag on growth. “The final tranche of Rs 20-lakh-crore package was announced (on Sunday), of which measures amounting to 4% of GDP have been undertaken by the RBI. The direct fiscal impact of the reforms, however, comes to around Rs 2 lakh crore (1% of GDP),” Soumya Kanti Ghosh, group chief economic adviser at SBI, said.

“While the package started on important aspects, the need to announce measures that add up to this top-down number made the entire package aimless, with several generic announcements which should ideally have been a part of a normal economic agenda,” analysts at AB Bernstein said in a strategy note, reported The Bloomberg Quint.


We have provided our take on the stimulus package over here.

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