Prime Minister Narendra Modi has announced a special economic package to bailout India’s economic crisis due to COVID-19 lockdown on 12 May 2020. The package taken together with earlier announcements by the Centre during COVID and decisions taken by Reserve Bank of India (RBI) is to the tune of Rs 20 lakh crore. The stimulus announced by the government is equivalent to almost 10 percent of India’s gross domestic product (GDP).
The package will provide a much-needed boost towards achieving Atmanirbhar Bharat (self-reliant India). The five pillars of Aatmanirbhar Bharat are– Economy, Infrastructure, System, Vibrant Demography and Demand. The package will also focus on land, labour, liquidity and laws. It will cater to various sections including cottage industry, MSMEs, labourers, middle class, industries, among others. The package will not only increase efficiency in various sectors but also ensure quality.
These reforms include supply chain reforms for agriculture, rational tax system, simple and clear laws, capable human resource and a strong financial system. The reforms will promote business, attract investment, and further strengthen Make in India initiative. The package will also focus on empowering the poor, labourers, migrants, among others, both from the organised and unorganised sectors.
Union Minister of Finance & Corporate Affairs Nirmala Sitharaman on 13 May 2020 announced credit support related measures for businesses, especially Micro Small and Medium Enterprises (MSMEs) to support Indian Economy’s fight against COVID-19.
In a move to provide relief to the businesses, additional working capital finance of 20 percent of the outstanding credit as on 29 February 2020, in the form of a Term Loan at a concessional rate of interest, will be provided. 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 percent guaranteed by the government of India providing a total liquidity of Rs three lakh crore to more than 45 lakh MSMEs. The scheme can be availed till 31 October 2020.
A provision has been made for Rs 20,000 crore subordinate debts for two lakh MSMEs which are NPA or are stressed. The government will support them with Rs 4,000 crore 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 percent of his existing stake in the unit subject to a maximum of Rs 75 lakh.
The Centre will set up a Fund of Funds with a corpus of Rs 10,000 crore that will provide equity funding support for MSMEs with growth potential and viability. 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 crore. The move will encourage MSMEs to get listed on main board of Stock Exchanges.
The definition of MSME will be revised by raising the investment limit. As per the revised definition, any firm with investment up to Rs one crore and turnover under Rs five crore will be classified as ‘Micro’. A company with investment up to Rs 10 crore and turnover up to Rs 50 crore will be classified as ‘Small’ and a firm with investment up to Rs 20 crore and turnover under Rs 100 crore will be classified as ’Medium’. The distinction between the 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.
In a move to help MSMEs to increase their business necessary amendments are being made in procurement of tenders. The General Financial Rules (GFR) of the government will be amended to disallow global tenders in procurement of Goods and Services of value up to Rs 200 crore. This move will lead towards self-reliant India and will also support Make in India initiative.
Similarly, under the Pradhan Mantri Garib Kalyan Package (PMGKP), where the government of India contributes 12 percent of salary each on behalf of both employer and employee to EPF will be extended by another three months for salary months of June, July and August 2020. The total benefit accrued under this is around Rs 2,500 crore to 72.22 lakh employees.
Under statutory Provident Fund (PF) contribution of both employer and employee will be reduced to 10 percent each from the existing 12 percent each for all establishments covered by EPFO for next three months. This will provide liquidity of about Rs 2,250 crore per month. An Rs 30,000 crore Special Liquidity Scheme is 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 percent guaranteed by the government of India.
In a move to inject liquidity for DISCOMs, the Power Finance Corporation and the Rural Electrification Corporation will infuse liquidity in the DISCOMS to the extent of Rs 90,000 crore in two equal installments. The amount will be used by DISCOMS to pay their dues to power generation and transmission 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 such as the Railways, the Ministry of Road Transport and Highways (MoRTH) and Central Public Works Department (CPWD), etc will give extension of up to six months without costs to contractor. This will cover construction/ works and goods and services contracts. It will cover obligations like completion of work, intermediate milestones etc and extension of concession period in PPP contracts. The government agencies will partially release bank guarantees, to the extent contracts are partially completed, to ease cash flows. The move will give much-needed relief to contractors.
Apart from this, the state governments are being advised by the Ministry of Housing and Urban Affairs to invoke the Force Majeure clause under RERA. The registration and completion date for all registered projects will be extended up to six months for all registered projects expiring on or after 25 March 2020 without individual applications. This may be may be further extended by another three months based on the state’s situation. Various statutory compliances under RERA will also be extended concurrently.
In a measure to provide tax relief to the businesses, the pending income tax refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership and LLPs and cooperatives will be issued immediately.
Tax related measures were also introduced. The Tax Deduction at Source (TDS) rates for all non-salaried payment made to residents, and Tax Collected at Source (TCS) for the specified receipts will be reduced by 25 percent of the existing rates. Payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc. shall be eligible for this reduced rate of TDS. The reduction will be applicable for the remaining period of FY20-21 i.e. from 14 May 2020 to 31 March 2021. This will provide liquidity to the tune of Rs 50,000 crore.
The due date of all income-tax return for FY2019-20 will be extended from 31 July 2020 and 31 October 2020 to 30 November 2020 and Tax audit from 30 September 2020 to 31 October 2020.